From what I've read, it competes with Illustrator pretty well. The only major problems that people seem to have are related to finding the right update for their machine. As with any open source competitor, it's also a little tough to get the exact same functionality and ease of use especially if you're used to the "brand name" product.
However, given the major price difference, I'd say that unless you're seriously tied to Illustrator, you should definitely see if Inkscape fits your needs. If you're like me, you really only open Illustrator every once in a blue moon. If I wouldn't have gotten such a good discount on it, I wouldn't have probably even bought it. 😛
