The update improves the machine's picture output, with better support for 1080i screen resolution over 720p. Also, Blu-ray films can now be viewed in YUV instead of RGB, which should reduce loss of quality in converting HDMI images.
USB support is also improved so that contents of the machines hard disk can be backed up to USB devices. µ
It's nice to see the PS3 starting to live up to it's potential. However, Sony should of had this problem fixed before the release!! At least we know they are working on it though, two firmware releases in two weeks is pretty good.