David Wiley just published a draft of his next paper, "Using O2 to Overcome Learning Objects Limitations". Interesting read, as usual, and he makes some good points re: granularity and reusability.
Some of the things he talks about are already in the plans for CAREO (i.e., being able to use anything as a learning object, regardless of design and format, and have it Just Work. I'm planning to extend CAREO's media playing capabilities to better wrap various media files and automate the reporting/tracking of status in order to feed data back into CAREO, similar to what an LMS would do with SCORM).