This is an awesome video, and I'm suprised that XBAP has flown under my radar for so long. Very cool stuff.
Mawcc - I think you're right that XBAP and Flex 2 are going to be big competitors. I'd always seen WPF as a competitor to Adobe's Apollo project -
http://labs.adobe.com/wiki/index.php/Apollo but this is all (or most) of the benefits of WPF without having to worry about the desktop integration.