Today the target difficulty dropped low enough to activate the new difficulty algorithm... Essentially this did split the network in two and deprecated daemon versions older than version 0.4.8 build 1128. New daemon versions will warn about too low proof of work at block height 1088411 and reject any alternate chain with blocks that contain too low target difficulty.
Main reason for the new difficulty algorithm was to avoid integer underflow when the integer representation of target difficulty goes too low, then recovers and goes low again. Due to Talleo network currently not accepting empty blocks (blocks with only coinbase transaction containing miner base reward), this usually happens when the network usage is very low and time between blocks increases too high.
When target difficulty is too low, it can cause block using any hashing algorithm to be accepted and people can cause spurious network splits. Usually daemon doesn't allow changing alternate chains if the current alternate chain is too long, but very low target difficulty still allows forcing the daemon to accept alternate chain containing blocks and transactions that wouldn't be otherwise accepted. Using the old difficulty algorithm the daemon did stop permanently after target difficulty did drop to 0.