The sensor has grown up from 7mp 1/2.5" to 8mp 1/2.3". Olympus has been using intermediate size sensors for their Stylus line-up for a few models now as well.
An 18x optical zoom that goes slightly wider, from 28-504 to 27-486mm (35mm equivalents)
Face detection is added
xD memory card (see Opinion/Analysis below)
RAW (obviously) and JPEG
Other features: PSAM exposure, 4 AA batteries, converter lenses (eg TCON-017) via adapter (CLA-10). Optional: underwater case (PT-037)
"Mechanical image stabilization" according to the press release. The SP-550 described it as "CCD shift" (aka sensor shift or anti-sensor shake). This seems to suggest that it is still a sensor shift approach. If the stabilization was in the lens, they would have probably called it optical. But this is not 100%
Buzzwords: Bright Capture, TruePic III
This is the camera that started the super-superzoom craze. Olympus got a head start on the industry but perhaps they rushed it a bit, which may explain some of the issues pointed out by the various reviewers. The hope is that with version II Olympus has improved on those issues and built upon this model. A slightly larger sensor may help as well. Going 1mm wider may attract more wide-angle fans, or at least should serve as a commitment to wide angle (or perhaps this was caused by the sensor size change).
Olympus believes it can charge a premium over the Fuji S8000fd and Panasonic FZ18 competitors (Olympus is $100 more at MSRP). Sony (H9 at 15x) and Canon (S5 IS at 12x) also started at $500 as well as its predecessor, the SP-550.
Sadly Olympus still insists on xD only. They should learn a lesson from their xD friends at Fuji and offer a dual xD/SD drive, and turn the xD disadvantage into an advantage. But then again, this is the company that requires Olympus-branded xD cards to record panoramas. How sad Olympus!