For reference, previous threads of particular relevance:
Original Combat Rewrite Notice (Jan. 4, 2005)
Original Skill and Equipment Changes (Jan. 4, 2005)
Updated Skill and Equipment Changes (Sep. 9, 2006)
Here's where we stand on the rewrite (updated Feb. 19, 2007):
LARGE PROJECTS (can take months per item)
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100% done re-writing core combat mechanics
100% done writing compatible cross-over code (see "hybrid" below)
100% done writing equipment identification code (min./max. protective values, etc.)
95% done writing new messaging engine
MEDIUM PROJECTS (often take a few weeks per item)
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100% done rebalancing player vital combat statistics (health, damage, etc.)
100% done adjust existing ability and spell effects
80% done rebalancing NPC vital statistics (health, damage, etc.)
50% done creating flavor messaging (making combat more exciting and engaging)
35% done building new hunting areas for dozens of new NPCs
10% done developing shops that carry new equipment suited for the rewrite
SMALL PROJECTS (often take a few days to a week per item)
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10% done building more rare and unique creature spawns
0% done writing skill conversion code
0% done writing skill training locations
0% done updating treasure system to drop equipment suited for the rewrite
0% done updating crafting system with recipes suited for the rewrite
0% done rebalancing magic/spell damage
0% done implementing NPC damage
The combat rewrite features a hybrid technology that allows us to treat players and NPCs equally in most situations, which effectively fixes problems stemming from player-versus-player combat and also allows us to easily write support for NPCs to behave much more like players, including preparing and casting spells in a shared magic system, dynamic roundtimes assignment, using physical equipment (weapons/armor), etc.
As you all know, this project has been ongoing for nearly three years (and is almost done, thankfully), so I am probably forgetting a lot of stuff I have developed, re-written, fixed, and recalculated during that time that isn't on the list above. Therefore, the list above should serve more as a guide to how much longer you should expect to it to be until the system is released rather than exactly what it contains (other threads will have more information on that).
I will be adding to this list any sub-projects I have forgotten or feel is required before the release of the rewrite as well as updating the list with progress towards a project. If you notice the progress lowers by any reason, it's because it is either being re-done or an unexpected factor has increased the amount of work involved in that project. Although at this point, it's very unlikely either will be the case since most of the development is all literal/technical and almost none of it's conceptual anymore.