Go here to see an ETF issuer prospectus

Tax Treatment
The method in which ETFs are created and distributed means that investors do not pay out capital-gains taxes until actually they sell their ETF. As far as the Internal Revenue Service is concerned, internal ETF trading(rebalancing) is considered to be in like kind exchanges. Mutual funds, however, are a different story: Capital gains must be distributed to shareholders.
This is a huge advantage for ETFs. The delay in paying taxes derived from owning ETFs rather than mutual funds can be beneficial for a stock portfolio. After all, avoiding out of pocket payments to the IRS for capital gains taxes means your REAL return is higher. An ETF could be bought today and held until your death, giving your beneficiary a favorable cost basis adjustment.
Click here to view an article discussing the tax benefits of ETFs.

Trading
Unlike traditional index funds, ETFs can be bought and sold throughout the trading day at intraday prices, rather than based on a fund's net asset value at 4 p.m. (Eastern time) on any given day. This means an investor can own a portfolio for years or minutes; It’s up to you. Although they are constructed like mutual funds, ETFs trade like individual securities on stock exchanges. This gives investors the best of both worlds, as they combine the conservative diversity of a mutual fund with the flexibility of a stock.
Because ETFs trade on an exchange, they can be bought on margin, sold short(even on a downtick), and traded using stop and limit orders. Again, the key here is that they have many of the characteristics of an individual stock. But, without the risk of owning one company.

Costs
This is another huge benefit ETFs have over mutual funds and separately managed accounts. ETFs are not actively managed and are therefore less expensive to own than mutual funds. While newer ETFs do rebalance quarterly, it’s a computer picking the stocks. Not a so-called guru getting paid $1 million dollar salary to under perform the market! The average ETF is far less expensive to own than the average mutual fund (typically from 50-90% less).  Go here to use the SEC mutual fund cost calculator.

Indexes Are Not All Created Equal

Almost all investors who are currently using Wall Streets' active money management techniques such as stock picking, mutual funds, and separately managed accounts will under perform the market over time....and pay fees to do so! 

Passive indexing involves no human 'trading to beat the market'. In fact, modernized indexing via ETFs may outperform mutual funds and other professional money managers by a wider margin than even traditional indexes do. To learn more about index modernization, Go here.  Currently, investors can index with mutual funds, Unit Investment Trusts, or ETFs. ETFs are exploding (over $661 billion in assets as of 7/31/09) in growth because they're passive indexes, and usually have lower fees, and virtually no capital gains distribution. For these reasons, many believe ETFs may some day overtake mutual funds in assets.

Many indexes that have existed for years, like the S&P 500 index, have serious flaws in their makeup. For example, most investors are unaware of the subjective nature of this index. The stocks that comprise it are selected by a committee....Not a computer. Also, because the S&P 500 is market cap weighted, most of your investment is on a few huge companies. The beauty of ETFs, is that many of them now use fundamental stock screens to form their indexes. Many also offer rebalancing more frequently than annually. These newer ETFs are based on a new "fundamental" indexing strategy pioneered by Robert Arnott, chairman of Research Affiliates and editor of the Financial Analysts Journal.  Go here to read an article written by Robert Arnott discussing the merits of fundamental indexation. Arnott shook up the indexing community with a 2004 academic paper that was critical of most traditional benchmarks, which weight companies by their size -- specifically, by market capitalization. Basically, his argument was that market-cap-weighted indexes expose investors to overvalued companies, especially during bubble periods. Historically back testing indexes that are based on fundamentals proves his point....They outperform traditional indexes like the S&P 500.  Go here to read an interview with Robert Arnott.

This is a good source for further education about ETFs. The future for ETFs looks bright at this point. Regardless of market cycles, the popularity of ETFs likely will increase simply from an increasing breadth of products available and investment advisors utilizing them.