.NET Framework 3.5 will be released sometime towards the year end, along with Visual Studio 2008. It's going to be an exciting release with lot's of goodies for Windows/Office Developer and also for Team Managers because of the improvements to Visual Studio Team System. Popularly, other people have talked red bits/green bits here. You can read those and join the discussion back here.
What's New in .NET Framework 3.5:1.) CLR Enhancements: Although the CLR uses the same model as 2.0, you can read here about the improvements/changes to the assemblies.
2.) Compiler Enhancements: New VB.NET 9.0 compiler and support for changes to C# 3.0 like expression trees, lambda methods, extension methods, static reference for anonymous types etc.3.) LINQ: Probably the most revolutionary change in the 3.5 framework. LINQ to XML, LINQ to SQL, LINQ to Objects and LINQ to Datasets. Along with functional programming, LINQ is an outlook change to programming in C#.
4.) Performance Improvements: Quite a few performance improvements have been made in 3.5. ADO.NET gets paging support as well as synchronization from caches at local and server datastores. Also performance improvements for multicore CPUs5.) Networking changes: Peer-to-peer networking stack, including a managed PNRP resolver.
6.) Windows Information APIs: New wrappers for WMI and Active Directory Services. WMI 2.0 gets a managed provider.7.) ASP.NET: New implementation of Client Application Services as well as 3 new ASP.NET controls. Also AJAX programming for ASP.NET is easier and better performing.
8.) Windows Communication Foundation: WCF now works with POX and JSON data.9.) Windows Presentation Foundation: Newer plugin model for creating AddIns. Although SilverLight is separate, I think its still presentation right?? SilverLight CLR is also part of the .Net Framework. I really don't know if XAML gets any language change in the 3.5 framework. I love the XAML designer from VS2008 though!!
10.) Misc: The C/C++ get a standard template libarary (STL) so that these languages can use share .NET libraries
This is not at all exhaustive. I may have missed a few points, but then its got most of the changes till beta2. Not much should change between this and the final, other than the bug fixes!! And friends, please write your comments here instead of sending me emails about something you didn't understand or some mistake I made. That way we can broaden the discussion further!!