According to David Emberton at ActionScript.com this parser will become part of a fully standards compliant XHTML display engine. The engine will support XHTML, XForms and XPath. An early prototype has been made available.
Sounds like an ambitious project. Would be interesting to see a full out XHTML browser in Flash MX. But I am skeptical, parsing is CPU-intensive work, and I would be surprised if the parsing of XHTML doesn’t turn out to be painfully slow.