On Thursday, Ralph Giles announced the alpha release of Thusnelda, the next generation implementation of the Theora encoder.
The primary change in comparison to the first generation Theora implementation is a completely rewritten encoder with vastly improved quality vs. bitrate in the default vbr/constant-quality mode, and better tracking of the target bitrate in cbr mode.
Jan Schmidt made some experiments to compare the two versions and found a 20% compression improvement for no loss in quality while at the same time also achieving a 14% improvement in speed.
In 2007 there was a huge (and mostly uninformed) discussion about the lack of quality of Theora on slashdot and Monty wrote a reply clarifying some of the misinformation and explaining the shortcomings that the Xiph team wants to work on to improve the codec. A lot of these issues are now being attacked through the community and through the financial support of the Mozilla grant.
Theora is now much closer to H.264, if not even having overtaken it in some dimensions. Congratulations to the Theora team, in particular Tim Terriberry, Monty, and Ralph Giles. Once this Theora generation is released, it will be a competitive modern video codec.