It's running Honeycomb 3.2. One of the best things about the Xoom is that unlike the other tablets, the updates come directly from Google, so it's always first to get them. I've been testing out tethering from my phone, and I've been most impressed. I have 25Mb/sec cable at home, but even Verizon's 3Mb 3G (when on the road - and 4G when I'm in the right place) is enough to stream Netflix at nice bitrate, Pandora, YouTube, etc. Next step is to root it so I can install adfree. It's an absolute beast at gaming too, N64oid runs at full speed on it, played a little Mario Kart and Wave Race last night. I'm probably going to order a dock for it so I don't have to lay it down if I want to use the HDMI, and so it stays nice and organized. I'm totally impressed by the battery life too - I haven't charged it in over 24 hours (and even then I don't think I got it near 100% when I had it plugged in), and I'm at 35% battery - and I've been using the Hell out of it (watched Iron Man 2 on it last night, been using bluetooth and WiFi all day, browsing the web, listening to music, playing games, etc). I didn't expect the battery to be that good, but it's amazing.
I do think that for the most part, tablets in general are a novelty (though they are certainly not just smart phones with bigger screens) - but depending on exactly what you use your computer for, you could easily replace your laptop with one, especially one like this with USB host support, MicroSD, HDMI, bluetooth and so on, without any proprietary parts (charger and USB host adapter aside). Not too many people *need* a tablet - but you can easily fill a void that you never knew existed when you get one. I'm gonna take this thing everywhere with me, it's just so damn convenient.