50% of staff working on the OLPC project will be layed off and the remaining staff will work at reduced salaries. Development on Sugar will migrate to be community based.

Genius is not so much about new ideas as it is about clarity of
ideas. Two people can have the same idea yet it will be genius in the
one and mediocrity in the other.
—Kevin Solway
Most computers lose half their value by the time they get to your
doorstep...this one has tripled
—#olpc chat
elf's OLPC Journal
This journal documents my experiences with an OLPC laptop. My interests lie in the design of the laptop hardware and software and whether the educational needs of child in a First World country are satisfied by a product designed to satisfy the requirements of a child in the Third World.
Staff Cuts at OLPC
Intel Classmate Review
hardware
Laptop magazine reviews the Intel Convertible Classmate laptop which converts into a touch-screen tablet which supports both stylus and finger inputs. It was rated 4/5 stars at a price of USD$499.
It wouldn't be fair to compare this 2nd generation Classmate with the XO which is still the first generation. I don't know if the stylus and finger input areas work in the latest versions of the XO OS.
(Aside: my nephew mentioned that he uses the Browse activity the most these days— to visit lego.com. His sister doesn't have an XO because the second G1G1 program never ran in Canada.)
OLPC-2 will Likely use ARM CPU
hardware
OLPC is considering switching from the AMD Geode CPU that the XO is currently based on to an even lower power ARM CPU to reduce the current 5W footprint of the laptop.
The only problem is whether Microsoft is willing to port Windows to the ARM; WinCE already runs on the ARM, but lacks sufficient features for the requirements od the XO-2.
XO-1.5
hardware
On Friday, OLPC announced a refresh of the XO laptop, designated XO-1.5, based on the VIA C7-M CPU. The CPU can be clocked from 400MHz up to 1GHz (which consumes 5W of power). It will have 1GB of SDRAM and 4GB of Flash RAM. Prototypes will be available to developers in September.
Vision vs. Reality
An analysis of the OLPC project comparing the original vision to what the project has actually achieved to date.
So rather than distributing millions of laptops to poor children itself, OLPC has motivated the PC industry to develop lower-cost, education-oriented PCs, providing developing countries with low-cost computing options directly in competition with OLPC's own innovation. In that sense, OLPC's apparent failure may be a step toward broader success in providing a new tool for children in developing countries. However, it is also clear that the PC industry cannot profitably reach millions of the poorest children, so the OLPC objectives might never be achieved through the commercial market alone.
Sugar on a Stick
software
Sugar Labs announced Sugar on a Stick, a learning platform that runs off a USB key. Downloads are available for various operating systems.
The New Future
XO 2.0 has been cancelled and in it place, ready for 2012 will be XO 3.0, a tablet.