According to this article at internetnews.com Microsoft is working on a tool set that will allow developers to build Flash-like applications built on top of the Avalon subsystem.
Code-named "Sparkle," the tools under development would be integrated with Microsoft's .NET runtime environment. That would ultimately mean developers could have Flash- and Director-like animation and graphics tools ready-built for them soon after Longhorn hits the marketplace.
One source familiar with the project, who saw examples of the "Sparkle" toolset integrated with Microsoft's C#, said early prototypes have given rise to talk of its potential as a "Flashkiller" or even a "Director-killer," referring to Macromedia's popular Flash animation software and Director tool, which is best known for building small animations for CDs.
I didn't make it to PDC, but did anyone hear about this? I don't see any posts on weblogs.asp.net or longhornblogs.com.