No, the dr has, fortunately, been significantly improved. The popphoto article announcing the E-420 stated that this new generation used the same sensor as the previous generation with new processing, but this has since been shown to be untrue. At the moment, there's some debate over exactly which sensor it is, as it seems to share many characteristics with the E-3 sensor, but other characteristics (such as the contrast detect AF, which has been confirmed to be undoable with the E-3 sensor) match more closely with the sensor in the Panasonic Lumix L10. Or it could be a completely new sensor, improved over the E-x10 generation but lower cost than the E-3's.
I agree that it's a kind of dissapointing incremental upgrade to the E-510. But if I was looking at getting into a system with a new DSLR, it would be a definite contender.
Here's hoping for a real E-3 lite (with weather sealing and improved AF, but a smaller body and lower price) in september at photokina (or whichever show it is they have then).