It's good, and well supported. Updates come out about once a month, and there are add-ons for almost all the WotC D&D books (they will catch up around March, apparently). They support a choice of 3.0 and 3.5 rules modes (and recently also added Eberron and Dragonlance), and they have also converted most of the 3.0 books for use with 3.5. All datasets are approved by WotC (which causes a slight lag) but it maintains a certain level of quality and means everything is official and above board.
Support for non-WotC stuff is patchy but "coming soon" ... as Psion says, adding certain things can be difficult ... you can create new creatures, templates, etc. (and can hack in new classes) but adding certain things like special attacks can be difficult, so the process can break down. Also more complex parts of some books (parts of Unearthed Arcana for example) aren't supported, they tend to release a book and then you get increments of function through the updates.
They are indeed writing a new engine, which will apparently support non-Windows systems and non-D20 gaming systems. I seem to recall that the datasets will be upgraded at no cost.
Personally, I think it's the best electronic D20 tool on the market. It can be expensive having to buy all the add-ons, there are some good bundle deals but new books are only sold singly and are about $5 each.