Some time ago I stepped away from packaging so that I could focus more on documentation. So I'm mostly out of the loop on specifics.
We're a couple of packages away from a basesystem. That basesystem would be the list of all packages needed for a working "slim" ISO.
I understand that mklivecd is proving to be difficult to get working with the new kernel, but gettinther is on the right path to solving the issues.
KDE4 is a few packages away from being finished in the sense that "it works". By stealing some packages from [[Mandriva]], Neverstopdreaming got it running. However, more work needs to be done to brand and tweak it.
There is still interest in KDE 3.5. It's being worked on too.
Oh, and I also saw an alpha of a branch. This kind of thing is possible because we have a couple of people who are using Unity Linux - even in this pre-release state - as their main setup. Brave.