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Frames are fine with XHTML - no problems there.
I use frames a lot for web-applications but hardly ever for internet facing websites.. Things can often go wonky when people clickthrough to a deep page from an SE etc..
Frames can have an advantage in speed after the first frameset is loaded. And they can simplify content creation, because the framed page needs to include fewer bells and whistles.
But I have developed a great dislike (even a STILL growing dislike) for framed pages. Jake, you are familiar with the one rather large framed site I work with. It's a major headache behind the scenes! Search engines send people directly to orphaned pages, and we risk penalties if we use redirects to get the visitor into the frameset.
Bookmarking doesn't work with frames - and this has always been a big drawback, especially for larger sites where people can't easily remember the trail they followed to find content.
We're working on some server-side things to make bookmarking at least possible, but it still won't work as a normal browser bookmark function. We must insert an extra step, and that hurts the most interested visitors.
I "flattened" a framed site last year and saw pageviews per unique go way up, almost double. There seems to be a significant percentage of people who just don't get the metaphor - their minds just won't work that way.
None of this necessarily stops clients who like frames, as I well know.
