Pro: To save memory in the phone. Palm Treo was doing this many years ago and it is a life saver if you have a LOT of apps. Although, the app has to be designed to run from the SD card, not all apps can. But apps that utilize a large amount of memory such as a dictionary or data base are better to be on the SD card.
Con: In most cases the app takes a few miliseconds longer to load. I don't know how the Froyo will handle this but on Palm some apps would have split storage per say. A part of the app would be on the phone memory but its database would be stored in the SD card.