My thoughts on this:
1. WOW. We live in interesting times.
2. In the near term, it's a win-win. We get access to the Xara code and can borrow from it. Xara gets a publicity boost and good carma.
3. In the long term, it's a bit less rosy. Only a few bits of code are easy to borrow from program to program; most are difficult to impossible. Merging the two programs is not too realistic. Living side by side is more probable, but that means competition. Competition is tough. There's only so many Linux people interested in vector graphics, and they will need to decide which project to contribute to. Few if any people will be able to learn both codebases to contribute to both. This will hurt us (developers drain) and this will hurt Xara ("hey, we went open source, why so few contributors?").
4. In the end, the two most likely results are:
4a. Programs diversify enough so that each can stand on its own merits. Things like the connector tool in Inkscape are a step in this direction. Unfortunately for me personally, I'm not involved in this; things that interest me and that I work on are generic vector editing capabilities. Xara seems to have some sort of focus on web graphics (they have a tool for navigation buttons for example), but it's not enough to diversify. So if this happens, chances are it's Inkscape that will diversify into areas such as technical drawing, diagramming, maps, animation, complete SVG support etc. whereas Xara will more likely stay focused on plain vector drawing.
4b. One of the programs wins and cannibalizes the other. If Xara wins, Inkscape will stagnate and many people will feel betrayed and/or abandoned. If Inkscape wins, Xara will be hurt, and it will scare away other companies who might be considering going the same road. In proprietary software, the winner is not the best product but the one with better marketing (Xara itself is an example of that). In open source, the winner is also not the best product, but the one with better community. So, the critical question is how Xara is going to build and steer its community. They say the good words about "combine the best of Inkscape and Xara", but it remains to be seen what exactly they consider the best in us and in them, and how exactly they will go about combining it.
5. The things that first come to mind with regard to borrowing from Xara are its renderer and the CDR import support. Unlike Mental I don't consider Inkscape's SPCanvas to be that bad; it's small and reasonably transparent. What's really bad and scary is the livarot renderer, and that's where the slowness lies. Xara's renderer is indeed very fast, and I would love to see it incorporated into Inkscape and/or Cairo.
6. I would be very interested to see which toolkit Xara will use on Linux, if any. To me, perhaps the worst part of Inkscape is the GTK, because I have little control over it. It has problems even on Linux (such as the open dialog not working properly, see bug 1018798) but it's much worse on Windows (and no, I'm not referring to win98; there are other extreme annoyances, such as menus not working properly (bugs 954797, 1250240) and the dialogs-not-on-top (bug 969321) as well as the general clunkiness and clumsiness). I don't know if there exists a better cross-platform toolkit but I would like to find out. So I will be very interested to see how Xara does its porting; to me it seems that their UI has too many Windows-specific things to be ported easily.
-- bulia byak Inkscape. Draw Freely. http://www.inkscape.org