sf49ers1983 - 8:38 pm on Jul 15, 2010 (gmt 0)
Since this is Flicky's problem, I will keep my post short. Yes, canonical tagging dropped all of our product pages from the index. No other change to the site was made, we have been in business for going on 10 years, and have had excellent SERPs for a long time now. Our pages were dropped; I saw it with my own eyes; every URL version of the same page was gone. Nearly all of them have been recrawled and indexed now.
Flicky, once again, this process for us has taken close to 8 weeks now. Our hope is that, given enough time, this canonical implementation will result in higher SERPs since all of our inbound links will not be pointed towards a single URL page. We regain lost ground almost daily. I think the change you implemented is far more reaching than ours, so I would possibly expect an even longer waiting period while Google sorts out that change. I have grown to understand and trust Google's word when they say that things done for the site that help a human user (instead of focusing on search engines) will help your rankings. Your changes, I think, will ultimately help your users with faster page load times and possibly better navigation (depending on how that menu thing works out for you). So, you might have to just wait it out...