Very cool stuff... lguest was merged according to kerneltrap. Remember KVM, a kernel module with build in paravirtualization built directly into the linux kernel? 'lguest' is similar, but unlike KVM, doesn't require the VT enabled CPU.
Performance is still not up to Xen or VMWare, but it is something that'll be built in the kernel, is lightweight, and gives people hackability.
I'm not sure if more virtualization is better. I'd rather see efforts go into one of the existing technologies to make it faster / better or more compatible. Course, maybe lguest is is the project that'll get this needed attention.