WordPress 3 has a beautiful implementation of TinyMCE that, I believe, works far more smoothly than the original TinyMCE on which it is based.
Things that are great:
– The HTML/source view as a tab rather than a popup
– An attractive skin
– Great image handling, including crop and resize
What do I need to ‘steal’ from WP to get a working version of WordPress TinyMCE for use outside WordPress, i.e. in a custom application? Obviously the image processing is done in PHP too…