Here's the story, edited to add lots of news.
There will be lawsuits. (Here's the first.) Police are getting involved. There's a Trojan that uses Sony's rootkit to hide. And today Sony temporarily halted production of CDs protected with this technology.
Sony really overreached this time. I hope they get slapped down hard for it.
EDITED TO ADD (13 Nov): More information on uninstalling the rootkit. And Microsoft will update its security tools to detect and remove the rootkit. That makes a lot of sense. If Windows crashes because of this -- and others of this ilk -- Microsoft will be blamed.
(Via Schneier on Security.)