My company (360 Cities) works with some of the people who are on the Photosynth team, and I have had the pleasure of talking to some of them about all the different iterations of Photosynth over the years, including this new iteration. I'll share some of my own observations (without breaking my NDA ;-)
First off, I have a ton of respect for everyone I've met and spoken with on the Photosynth team. They represent all that is great about Microsoft Research (well, Photosynth has moved to the Bing Maps department a few years ago).
The first iteration of Photosynth was the one shown by Blaise Aguera y Arcas in what is now one of the most popular TED talks of all time [1]. Basically, it automatically arranged photos in 3d space from where each picture was taken, and allowed the user to "fly" from one photo to the next, giving a real feeling of navigating through 3d space.
The prospect and amazing, working demonstration of taking all the world's photos and mapping them together into a single quasi-3d space was a pretty incredible idea (for which Apple has just had a patent approved - WTF! [2]).
The Photosynth service itself in my opinion did not go far enough to combine the content of different users in order to achieve the goal achieving huge groups of images spanning very large (even city-wide) spaces. (There must have been significant usage / copyright issues which prevented a service like this from aggregating as many photos as would be required to achieve this).
On the user side, regular people had some trouble with the UI of Photosynth -- while the technology was obviously impressive, breathtaking at times, navigating this 3d space on a 2d screen is a very difficult thing to design well, and there is a learning curve. This was something which I think prevented more wide-scale adoption. (The other thing which personally turned me off was the silverlight requirement...)
Around the same time, Google built a "look around" feature in Panoramio [3] which was a very similar functionality, but remained fairly obscure, despite being eventually baked into the Panoramio layer on Google Maps/Streetview.
A couple years later, the Photosynth team built an iPhone app for stitching panoramas, and redesigned the Photosynth service to be more centered around 360° photography.
The Photosynth iPhone app was absolutely groundbreaking for its time, blowing away every comparable app in every respect (the size limitation of the output pano, as remarked elsewhere here, is small, this is mainly due to the strict RAM limitations of the iPhone, rather than any fault of the app itself). It has taken 3 or 4 years for anything to catch up to the quality and usability of the Photosynth app (Android Photosphere now has that crown).
Now, we are seeing the "New Photosynth" (which Microsoft seems to be calling "Photosynth 2" but it seems to me more like "Photosynth 3". This New Photosynth, to me, is simply awesome. What is interesting about it is that it seems to have the same guts as the original Photosynth, but the UI is completely redesigned and built in a very linear way, which is obviously addressing the original "weirdness" of the Photosynth 1 UI. This accomplishes a few things: it directs users to make a more consistent type of content (you now have 4 different types of photo sequences you can shoot), and it gives viewers one and only one way to consume that content. It also allows a better kind of "autoplay" functionality, if you want to simply watch the sequence of images without interacting with it.
What I don't like about the content that I've personally created so far is that it seems to be quite glitchy. Even when I shoot something carefully, there seem to be numerous artifacts in the 3d shapes that are created. I am guessing that this could be reduced considerably if the full resolution of the images was used for the 3d reconstruction, at the expense of more expensive computation.
All things considered, I really like where Microsoft is headed with Photosynth, and I look forward to seeing where things move.
One hint at what could be to come is that the amazing new Ricoh Theta has Photosynth support [4][5], which hopefully means that there will be some way to join together spherical panoramas into a "synth" at some point in the future, allowing a more freeform navigation within the 3d space.
[1] http://www.ted.com/talks/blaise_aguera_y_arcas_demos_photosy...
[2] http://venturebeat.com/2014/01/07/apple-patent-street-view/
[3] http://blog.panoramio.com/2010/04/new-way-to-look-around.htm...
[4] https://theta360.com/en/info/news/2013-10-07/
[5] http://blogs.msdn.com/b/photosynth/archive/2013/09/20/photos...