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The caching is a big plus too. Thanks for reminding me!
PHP really has no connection pooling at the DB level. So unless this changes, the caching is a MUST. Otherwise the DB queries are going to kill any site of moderate traffic.
Good call Mith.
PS-You are right Smarty does get abused too. But it can not get pushed as far as PHP in the code. Look at JAVA, JSP and JSF. These are moving in the oposite direction, more toward a templating engine and less to straight java to do display.
Can it be done in all PHP... sure. But I think that removing the template system is a big step backwards!