I've had to answer this question a bit lately, so I figure I might as well post the answer I wrote up for the solarisx86 yahoogroups list here as well...it's a bit disjointed being the merger of two posts to two lists, but hopefully it answers the questions most people have.
What are the differences between Xorg and XFree86?
From a technical standpoint, right now, not much - X.Org's X11R6.7.0 release and XFree86's 4.4 release are very very close to the same code. The biggest difference between those two releases is that XF86 4.4 contains code that is covered by the new XFree86 license 1.1, while X.Org does not.
The real difference is political/organizational/emotional. Starting with the expulsion of Keith Packard (author of the Render, Randr, and Composite extensions, among others) over a year ago and culminating a few months ago with the changes to the license, XFree86 has increasingly alienated some developers and distributors, and polarized the community. (They are fully within their rights to make the decisions they have, even though they are unpopular, but the result is that people are turning away because they disagree with them and/or the implications of them and how they were made.)
As a result, the once moribund X.Org (the industry group that was the successor to the MIT X Consortium in producing the main X11 releases and managing the standards) was revitalized and reformed as an open source foundation, and many developers & distributors have joined it and plan to use it to replace XFree86.
While Sun has no official, formal statement on the matter, I can repeat here what I said on the email@example.com mailing list today:
I see that you work for or are associated with Sun Microsystems. Has Sun decided whether to use X.org releases instead of XFree86 releases or not? I'm guessing that with the way that you have written that statement, they've made their decision to use X.org releases.
Yes, I work for Sun, in the Solaris X11 group (specifically the group responsible for the DIX layer of the X server on up to client libraries and core clients like xterm/xhost/xauth/etc., but we don't do DDX'es). I can tell you what we're doing at Sun, but remember, I'm an engineer, not a spokesman, so this is my view of the work we're doing, not an official corporate statement of direction or anything like that. (Hopefully this is obvious in all my posts - I speak for myself, not Sun - but the lawyers get ancy if I don't point that out sometimes.)
Sun's X server for Solaris has always been based on the X Consortium/X.Org releases, and we continue to follow that. (*) We had brought in some features from XFree86, such as XRender and driver support, while the X.Org releases were moribund - but those features are now in X.Org as well. Whether we continue to pull in features from XFree86 in the future depends on how XFree86 evolves vs. how X.Org evolves, but right now there's nothing in XFree86 we need that's not in X.Org, but several of the new extensions under development by people working with X.Org are things we need for projects like GNOME Accessibility and Project Looking Glass.
Sun has always been a sponsor of the X Consortium/X.Org and continues to be a sponsor of the X.Org Foundation. We have contributed code back to X.Org for years and continue to do so.
For our Linux releases, we ship whatever the distro ships for X. For Linux server products, that's RedHat & SuSE's enterprise server lines. The Java Desktop System Linux Edition is currently based on the SuSE Linux Desktop distro, and simply ships the X server SuSE provides in that. (In the current releases, that's XFree86 4.3.0 since that was the current release when SuSE put together SLD 1.0 last year.) Whether or not that will change in the future is something I can't comment on since those decisions are made by the Java Desktop System group, not my group.
(*) Yes, historically speaking the Sun releases were originally very loosely based on the Consortium release when we shipped X11/NeWS, but that died long ago and we have been working over time to bring our releases more in line with the open source releases, and continue to do so.
The one note I'll add here is that at XFree86, to submit changes we filed entries in bugzilla and hoped one of the developers felt like integrating the changes. The Core Team, which set their technical direction, was closed and not public.
At X.Org, most of our developers now have direct access to commit changes to CVS, and I've already committed several fixes that make it work better on Solaris and with the Sun compilers (a couple made it into the 6.7.0 release, the rest are in the CVS head for the next release). Others on our team are working in experimental CVS branches on features that we're helping with the community development of that will be needed for GNOME Accessibility and Project Looking Glass - and all the discussion of these future plans has happened on public mailing lists, at the recent X Developer's Conference which was openly broadcast on the internet and at conference calls with publically posted access numbers.