The plans with X.Org Server 1.10 were to merge the graphics and input drivers back into the X.Org Server to make it one monolithic build, but most developers didn't like the idea of regressing the modularized X.Org system to tie the drivers to a particular X.Org Server as it would also mean the X.Org Server release cycle would need to be sped up (circa three months per release). On the plus side it would have meant they could have killed off a legacy driver code, spruced up the API, and made some other changes, but fortunately it was decided not to merge all of the drivers back in at this time.
There is also no X Gestures Extension or X Input 2.1 for the xorg-server 1.10 release, but there is some other input-related improvements. Found though in this release are also some GLX improvements.
With X.Org Server 1.10 looking rather non-volatile, Canonical is hoping to be able to ship this release in Ubuntu 11.04. Christopher James Halse Rogers, the one responsible for Ubuntu's X stack, has written an email message casting his vote for including xorg-server 1.10 in the Ubuntu "Natty Narwhal" release.
The merge window closes tomorrow, and there doesn't seem to be anything particularly flammable. There's lots of cleanup, the new input stuff that we'll be getting anyway, and some extra GLX infrastructure which drivers may want to hook into.
This all looks fairly benign, so I suggest we go with 1.10 for Natty.
For more on the rest of the X.Org stack for Ubuntu 11.04, see here and here. While Wayland may be getting easy to build, it's still not yet ready for prime-time and will not be making its formal debut with Ubuntu 11.04.