During my stay in Silicon Valley I had the chance to chat with Steve Newcomb, the founder of Powerset. As he explained Powerset is a search engine that is based on linguistics and AI. During its development they gathered the top AI people to build a tool that would deliver better results than Google.
Steve said that the first prototype of Powerset returned more accurate results than Google. And shortly after that, on August 1st, 2008 Microsoft acquired them. When I asked Steve whether their technology is already used in Live Search or somewhere else he said he is not authorized to say anything about this.
It is commonly spread news that MS is testing a new search engine codenamed Kumo. My guess is that the core of Powerset will be integrated in this new engine in Kumo (if not renamed until launch). It will be exciting to see.