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It does NOT appear to disable WiFi... I enabled Airplane Mode, then I turned on my WiFi. It connected to my home network just fine -- was able to browse the web with no issues.
EDIT: It does appear that if you enable WiFi *before* you turn on Airplane Mode, it will then disable WiFi. You then simply have to turn WiFi back on, and you're good -- WiFi while in Airplane mode.
A smartphone is much more than just a phone. Entering "Flight Mode" satisfies the FAA requirement that all wireless communication devices be disabled for the duration of the flight.
Being in "Flight Mode" will allow you to still use the PDA functions (calendar, word processor, spreadsheet, and even compose e-mails) of your smartphone without violating FAA regulations. In addition, there are the entertainment options that newer smartphones are equipped with.
This is a common misconception -- it is not the FAA that requires this. It is the FCC. Cellular telephone radio spectrum is specfied as "ground-based radiotelephone communications" by the FCC. Thus, you cannot use it while in the air without violating FCC reg's.
The airlines themselves (not specifically the FAA) have stated they are concerned about electronic and RF interference with the plane's systems, and therefore ask you to turn off your electronic devices during take-off and landing. But it is not an FAA requirement that no wireless communications devices be used on an airplane. Many airlines are, in fact, offering WiFi service on their flights now. They couldn't offer it if the FAA had reg's against wireless communications devices. (I believe they do deactivate the on-board WiFi service during take-off and landing, just as a precaution -- but I could be wrong about that.)
The article you linked shows that the FCC has allowed Broadband in flight -- but not cell-phone communications. That ban on cell-phone communications is still in effect. Using Wireless Devices on Airplanes
However, it also seems that I was incorrect in that the FAA does have a ban on wireless devices below 10,000 feet. Once above 10,000 feet, those devices are useable again, as long as they're not violating the FCC's ban on cell-phone spectrum off-the-ground. FAA Fact Sheet
So -- to sum up: Airplane mode is required by both the FAA and the FCC, as it currently stands. Once above 10,000 feet, you can use WiFi devices if the airline has chosen to offer WiFi services on that particular aircraft. And the Droid does support using its WiFi while remaining in Airplane Mode, as long as you turn on WiFi after you've activated Airplane Mode.
Just throwing in my 2 cents (for anyone that might be interested)...
I've recently used the in-flight WiFi and was pleasantly surprised at the speed (connected with my laptop). Was able to connect to my company's Cisco VPN Concentrator, and remotely connect to servers I needed to support. Made me much more productive during the flight (even though it did cost $ 10)...