Wordle creates beautiful word clouds. Spaces in between and within characters are used as much as possible, so the information-to-ink ratio is high. It would be even better if related words are positioned close to each others. (They currently use just the frequencies)

The algorithm belongs to IBM, so there won't be any library or open API. It might pop up in Many Eyes, though. The current tag cloud widget there is pretty standard, and this on is amazing.

These are tag clouds from my two del.icio.us accounts.