A version byte changed, which says what version of PGP is being used. No algorithm changed. The old version can only read messages encrypted the old way, and the new version reads both. The reason for it was to make peace with Bidzos, but some people on the Net didn't like that. Those people liked it better when it had the outlaw cache to it.
Security is often inversely proportional to user friendliness.
Everybody wants a better interface, and we are working on it. I'd add that PGP 3.0 is rewritten totally from scratch. We will have two different pairs of keys, one for encrypting and one for signing. When you collect certifying signatures, you will collect them on the signature key. For encryption, the public key has only one signature, yours, and this makes it easier to routinely revoke and change your encryption public key but keep your signature public key extant for a long time.