The Nouveau Fermi support continued to be improved with KMS page-flipping and other features and fixes, but there was a big limitation of all this open-source Fermi acceleration support. The Nouveau Fermi driver doesn't have any "free" firmware that it can ship with the driver nor was the driver in a position to automatically generate its own firmware / microcode.
As a result, users needed to extract the firmware for their graphics card by first running the NVIDIA binary driver and then running a few commands to create a dump. After that, the Nouveau driver could be loaded with this microcode and there would be acceleration support available. However, as these dumps are created from the NVIDIA driver and for a specific ASIC, they aren't legally re-distributable upstream in the kernel or by most distribution vendors. As a result, most NVIDIA GeForce 400/500 owners have kernel mode-setting if using the open-source driver, but there's no acceleration.
While it likely won't make it for the Linux 2.6.40/3.0 kernel, Red Hat's Ben Skeggs yesterday commited to the Nouveau Git code-base his initial attempt at creating a free replacement to this NVIDIA PGRAPH micro-code that's needed by Fermi. So far it's been successfully tested on NVC0 and NVC4, but in theory should also work on NVC1, NVC3, NVC8, and NVCE. The NVD9 (GF119) ASIC is still in need of an MMIO trace from the NVIDIA binary blob for implementing proper support.
For some of these other untested chipsets, acceleration is disabled by default as a result until booting the system with nouveau.noaccel=0. Ben also has in a nouveau.ctxfw=1 module option for now as well, which will instead load NVIDIA's microcode (if available) rather than using this free software replacement.
The initial "FUC" microcode replacement can be found in this Git commit that adds in 3,100 lines of code to the Nouveau DRM module in the kernel. There's also been various other Fermi-related commits to the Nouveau tree in the past 48 hours as well (Git log). There's also this mailing list message looking for users to test out this microcode replacement; hopefully it will be merged in the next kernel merge window (Linux 3.1?).
Besides this initial FUC microcode firmware issue, the Nouveau developers are also struggling with re-clocking support / power management / fan control, which hopefully they'll have made more progress on in time for the next kernel merge window in a couple of months. Most NVIDIA Fermi owners will be best off right now using the proprietary NVIDIA Linux driver.