I too am interested in knowing how the updates are progressing as we have a client who's requirements closely match that of ProductCart.
The SEO element of the site is extremely important to both ourselves and the client. We have already completed a previous site for the client using cactushop pro v6, which uses custom 404 to handle the friendly URLs and works very well. This also publishes the friendly links in the menu/category/product links and other front of site links.
Not sure what the technical problems would be with using 404's with V3 (I'm guessing its the AJAX stuff), is there not a work-around or if you want to post the problem here maybe we can come up with an answer for you?? (eg I know moving code to a javascript module solved the small problem we had with Macromedia Flash and 404's).
How would the HTML Catalogue generator work? would it be a simple "static site map" with these friendly URLs and/or would it actually use the friendly URLs in the site navigation etc so the spiders can index and follow them from any page?
Keep us posted please - we need to make a decision on the solution in the next week or so.