As I understand it, from scanning through that first link jkd provided, XHTML 2 will not be backward compatible. For instance <br /> will be deprecated and <line></line> will take its place.
And, instead of:
<img src="/images/bork.gif" alt="This is Bork!" />
we could use:
<object data="/images/bork.gif" type="image/gif">
This is Bork!
I'm curious - if we use the <line></line> as a sub-paragraph (as suggested in the draft), if it were a very long line would it wrap, or would it cause a horizontal scrollbar to appear? I'm assuming it will wrap. In other words, I think the <line> must start a new line, and the </line> ends a line (preventing anything else on that line), but that the text between the tags will still wrap as normal.