There are a lot of interesting things happening around Internet Explorer. Somehow they seem to have created some business model around open standards and interoperability with other browsers. Or they just want some positive buzz. If the latter, I think they have succeeded. Their CEO has not, however. The recent announcement about XHTML came unexpected, but I am happy they went this direction. Especially now I see what the other option would have been. Hacking the HTML parser to add support for XML constructs is not the right way to do it.
It was recieved as excellent news by some other people as well, though as seen in the comments on the Internet Explorer weblog some were disappointed as well, but glad it was publicly announced. Personally I think this is a good thing. Before they should start working on this, by improving the XML parser, they should put some effort into the DOM. Better support for DOM Level 2 Core (and Level 3) methods, attributes et cetera and certainly some improved DOM Level 2 Events support. Seeing that people are still organizing contests on coming up with the best workaround for adding events makes you wonder if adding support for XHTML right now is really that important.
If they add support for it eventually it should obviously be done through the XML parser. Some enhancements would have to be made to the renderer and CSS media type differences would have to be implemented. (I guess they have support for the DOM differences.) They would also have to lift the XML renderer out of triggering quirks mode. However, if they do so they might break compatibility with sites or intranets relying on Internet Explorer triggering quirks mode within the XML environment. Not sure how they are planning to tackle that problem, but I hope they just break with existing sites for once and do the right thing. Might be impossible from a marketing point of view which would bring the Internet Explorer team back to extending the HTML parser. Not a pretty sight.