Build quality is solid, and looks very nice. Easy to clean, and has a good size water reservoir. ESE Pod compatible. Fast heating time, and easy to operate. Solid metal filter holder retains heat well- and produces good crema with fresh ground coffee.
29/05/06 See update below.

Flexible rubber frothing nozzle is flimsy, and tends to come apart. Works well on most-but not all occasions. Auto cappuccino accessory produces superb microfoam- although not always hot enough, and has a tendency to block if water is not flushed through device after each use.
Plastic drip tray needs regular empyting, and could easily warp if left full of hot water for too long. ESE pod filter cup always detaches from holder when removing handle from the machine after pre-heating, and has to be released by hand. Not a problem when ESE pod has been used. This is a real pain. Have had two identical machines- and both did the same.
Pump can be quite noisy at times, and often vibrates causing drip tray and warming plate covers to rattle.
Coffee extraction nipples/outlets in the filter holder are plastic, and will deform if rested on the bench while hot. This happened to both, although I was carefull to avoid it with the second unit. It only needs to happen once, and makes the outflow irregular.
29/05/06 Newer release machines in the XP4050 model have addressed this issue.

I am now onto my third XP4050 in 5 months. Both machines to date have suffered electronic failures. The last machine turned itself on when OFF on the power switch at the front, and the pump operated continuosly emptying the water reservior all over the bench. It could only be stopped by disconnecting from the power. Also, the ESE pod filter does not fit tightly enough in the handle, and sticks to the brewing head (by suction) when preheating empty. Needs to be removed by hand which can cause burns.  
The first machine suddenly built up pressure inside, and sounded like it was going to burst. I pressed the steam button to release pressure, and was shocked at how hard it was blowing out. From that point on it would not create pressure for coffee extraction and had to be retuned. The pump on both machines leaked, and water was dribbling from the underside of the unit.
When the machine works properly-it makes great coffee, but I cannot say it is reliable. It releases a lot of water into the drip tray to cool the brewing head for espresso- and needs to be emptied more regularly than suggested in the manual.
It has two milk frothing options: Auto cappuccino accessory which creates perfect microfoam if the accessory is not dirty- but is not always hot enough.
The other Milk frothing wand is flexible rubber with a stainless steel outer cover, and this is quite flimsy. It tends to come apart easily, and I do not reccommend removing it too often.
Generally I love the look and functions of the machine, and would be ecstatic if only it worked properly, and for more than two months.
Replacement was never disputed, and Krups Australia have been excellent in dealing with my ongoing issues.

UPDATE 29/05/06
My new machine is working well, and I have not had one problem with it. Makes a perfect espresso, and milk foaming function is fine. The problem with deformation of the conical coffee nipples has been addressed in newer machines. They are now longer- and flat bottomed, so placing the filter holder on a bench (cup upwards) will not deform the nipple as happened previously. I am now extremely happy with the machine!!

PS: I use a Krups GVX burr grinder, and find it perfect for espresso in this machine. The grind does not need to be ultra fine, as the pressurised portafilter compensates for this. I have no complaints with my grinder either, and use it every day!

My machine was a prize, therefore I cannot retun it to a store for changeover to another make or model.  Stay tuned for a further update on machine issue 3. As stated above, Krups have been fantastic in dealing with the replacements.