Chris Bernard (MSFT User Experience Evangelist) did an excellent post on debunking the Blend perception out there and put's into the right context and frame of mind. Is it a Flash Killer, no, and here's why..
That's the kind of response I'd like to see more of from folks on the street when prompted with "What's the difference between Flash and Blend?"
I'm internal Microsoft employee, I get to hear and see stuff that most wouldn't and while nothing would give me greater pleasure then to share this with one and all, sadly we have this thing called Shareholders and being a large company have lots of people wanting to get a piece of our game plan. So, I must wait for the Product Marketing folks to trickle what they can when they can.
I say this as I've seen the vision for the future, I was pulled aside and shown where the direction for some of our products are going and how we will get there. I see how Adobe are going to debunk some of these as best they can, but in the end this isn't really about Microsoft vs Adobe, it's much bigger - sadly, time will show all this in the end.
Chris, however has done a sterling job of giving you all the hints you need first round to where Blend is heading and why. If you have the time, please read this and post comments at Chris as he's what I call an "enabler" (back at you Chris).