Just read this overview of SQL Server Express.
I'm impressed. It's a great move by Microsoft to provide a free version of the SQL Server 2005 programming model. The killer feature is the easy deployment of the database server and x-copy deployment of databases.
According to the article, this version is being targetted at:
Non-professional developers building Web applications
ISVs redistributing SQL Server Express as a low-end server or client data store
Hobbyists building basic client/server applications
I think it's insulting to say Non-professional developers and hobbyists. The truth is that SQL Server Express just won't scale but it will be perfect for many professionals building web or client/server applications with low transaction rates. When you need performance, you have to pay for the upgrade.
The real target is ISV's doing rich clients and helps keep them from defecting to MySQL. No doubt this will also mesh nicely with Longhorn and WinFS.
My only big disappointment is that SQL Service Broker isn't allowed unless you route through a more expensive edition of SQL Server. It could be a useful programming model even if you're doing a standalone app. But it's not critical since you can roll your own queuing technology.
I also noticed that Windows XP Home isn't on the supported operating system list. That's doesn't make sense since there are countless consumer applications that could use a local database. Why restrict it? Is it really not supported?