New Features

New Xbox 360 compatible runtime
Direct deployment to Windows/Xbox 360 targets
New Shadow system with PCF/VSSM
New Drag/Drop material palette
New character controller with support for walk, jump, etc
New Fresnel reflective shader
New gesture recognition operator
New two tone metallic flake Car Paint shader
New pulse train generator operator
New "raise event" macro
New .XSI model importer
Ability to set RenderStates per material
Ability to toggle wireframe on entire viewport
Automatically set skybox cube maps on materials with : Environment semantic.
New Blade3D.Windows.Forms compatible scene control and sample application
New textures

Improvements
LensShaders have a control texture for effect intensity
All organic shaders now are fully unified with lighting
Improved simple terrain performance
Improved Phong Specular shader
Assets can now have nested folders
Allow multiple water instances per scene
Allow axis aligned bbox precision on trigger volumes instead of just sphere
Allow macros to be grouped in sub-categories
Improved lighting defaults
Improved perf for water
Light priority is now configurable
Switch to abstract file system that can run from .Zip files etc
Remove hard coded directional light - now regular scene item
Update shaders to be compatible with buggy Xbox 360 HLSL
Automatically swizzle textures for big-endian targets
Automatic startup screen generation for deployed projects
Macros can now be drag/dropped
Atmosphere integrated as unified light
Can now specify a material per texture for BSP maps
Added ability to disable Axis arrows in scene
Major improvements in material system performance
Added property help to all shader parameters
Fix broken properties on some shaders
Add texture alpha support to all shaders
Improved HitTest performance
Added semantics to allow slider control for shader properties
Scrub editors now accelerate proportionally with mouse distance
Allow >65k vertices during model import
Improved FBX import
Skybox now drawn as single mesh to reduce seams
Can now change renderstates on materials
Support for double sided materials (reqiored for FBX import)
LensShaders can now have alpha mask textures similar to Photoshop
Fix many bugs in model import for all model types
Lens Shaders no long affect selection boxes.
Big improvments to the gaussian blur shader

Bug Fixes

Fixed stretchrect to stop erasing the alpha channel
Fix for scripts getting run too often
Fix for missing textures during Quake 3 map import
Fix issue with angle editor on toolbar
Fix crash when empty string entered in some editors
Fix bug preventing some modules being exported
Fix broken enum support in graph runtime
Fix animation queueing
Handle colors with 0 alpha in color picker
Clamp GUI control zoom so it does not wrap
Fix model materials not being set
Remove some obsolete properties from certain objects
Fix crash when water depth material was unbound
Fix bug in radial blur shader
Rename EventMacro to PropertyChangeMacro
Fix so shader does not compile when using find/replace dialog
Fix many viewport issues
Prevent selection on Atmosphere

Known Issues

Projected Texture Lights not working on Xbox 360 (Shader Compatibility Issue)
Projected Cubemap Lights not working on Xbox 360 (Shader Compatibility Issue)
Reflective/Refractive Water issues on Xbox 360 (Cause TBD)
Script not working on Xbox 360 (Not yet implemented)
Sound not working on Xbox 360 (Not yet implemented)
Bounding box issue in model import for static models
Selection problem due to new model space hit testing
Connectors on GraphView show as black due to a bug with the material system
When deploying Font textures are not detected as dependencies and have to be manually added