Modern Diesel tech is good stuff, I used to have a VW TDI Golf before I sold it for my Mo (needed more room, and needed more towing capacity than a Diesel Passat). They are powerful, fast, quiet, "clean", and got 50MPH on the highway and never worse than 40MPG even after the worst twisty back road thrashing I could provide. If you've never test driven one, go do it, especially the new 130HP Passat TDI, all that massive torque will put a smile on your face I promise :2:.
However, read "clean" above as no more showers of soot out the tail pipe like in the days of yore. Diesel does still produce far more NOX than a gasoline engine, directly caused by the increased air to fuel ratio and more complete burn of the fuel, which is what makes Diesel more efficient. NOX is the primary ingredient in local smog problems, which is why it is so tightly controlled by CARB and such.
OTOH, Diesels produce far less CO2, a green house gas. Think of Gas vs. Diesel as a local pollution vs. global pollution argument. Also Diesels produce those extra NOX emissions only at idle when the air-fuel ratio is off the charts at like 80 to 1. When under load the Diesels don't produced much more NOX than gas engines.
One of the reasons the NOX can't be cleaned up with a Cat is the high sulfur content in US Diesel fuel. The sulfur will clog up the Cat in no time. In 2006 new regs kick in and all Diesel fuel produced in the US should comply with new Ultra Low Sulfur Diesel (ULSD) standards, which will allow manufacturers to put on new cats, pass the NOX tests, and finally really get their butts into production.
But all that is a long ways away, time will tell how much the oil companies kick and scream about investing billions in hardware to get the sulfur out, and how quickly auto manufacturers will use the new potential of ULSD.