It's come a long way since then and they released version 1.0 RC2 last month with a change log that suggests they've got common use cases covered and are moving on to "nice to have" edge cases. They've also reported success with running phpMyAdmin, phpBB2 and PHP-Nuke under Phalanger.
He goes on to talk more about what improvements have been made to Phlanger, why it hasn't really caught on, and asks the question:
f Phalanger was to get accepted and somehow start turning up on $5 / month shared hosts, would you use it? And what if Phalanger was to implement something like namespaces before the real thing - would that be attractive to you?