So many improvement for both specs! I must say that I find myself much more attracted to XHTML2 over HTML5 because it still acts like a document markup language where HTML5 wants to do application interface stuff. I still am unsure why they wanted to add so much interactive and browser dependent functionality to HTML5.

I think the idea is to add some functionality that would make the browser a viable environment for "sovereign applications." That is, applications that are long running and highly interactive. Ajax has gone a long ways towards doing this for the web, but a local persistent data store, real networking, offline capabilities, and more fine-grained control of the UI (drag & drop interface, editable, etc.) will make a huge difference.

I wouldn't say it's "browser dependent." The point of making it a standard is so it wouldn't be browser dependent...

That said, I think there are definitely pros and cons for both specs. I'm kind of excited about the APIs though. (Also, the APIs are technically being developed by a third party, the Web APIs working group.)

HTML5 seems more use in the real world to me. And getting rid of the need for flash by having built in browser support for video/audio is a great step forward.