Chris's Random Ramblings
The Second Life client code was released under an open source license early this year. There were some really cool immediate benefits, such as a linux ppc build being available only a few days later. Linden Labs have stated a few times that they plan on also releasing the server code under an open source licence, but this has not yet occurred.
In the meantime, there has been considerable amount of work done on Open Sim which is an independently developed, Open Source implementation which uses the same protocol as the Linden Labs server (and thus you can use the same client).
In functionality terms, compared to the Linden Labs grid it only supports very basic functionality, but there is enough there that you can host your own server, connect to it, walk around and build some objects. As far as I can tell there is no support for scripting yet, but there is some support for physics modelling using a third party library.
One of the more exciting aspects is the Deep Grid, where anyone can connect a sim which they host to this grid. So far I've had no luck in finding a server on this grid that I could connect to, but this is basic infrastructure which is required for an open grid to thrive.