According to the Washington Post, "The Pentagon has canceled plans to collect votes over the Internet from military personnel and civilians abroad for this fall's presidential election because of security concerns"

Apparently the system will still be used for a test but the votes will not be counted officially. The Pentagon have some very very smart people and it looks like they have won the argument on this. Good for them. As Avi Rubin said, "It's all the credit to them for inviting us onto the security panel when they anticipated we would say negative things about it, and then taking our advice that seriously. It's really incredible."