Aaron, Sean said some of this above, but I’ll put in my two cents (as someone who has worked on this topic). There has indeed been a lot of hubbub about whether there are problems with CDM on small scales. In my own opinion, while it’s not clear that everything is peachy keen, the problems have been somewhat overstated. As Sean mentioned, most of the issues come on small scales: do the dark matter halos have too much density in their centers, or are they just too dense overall? do they have too many small satellites? And most of the initial claims of there being huge problems were based on the initial somewhat naive comparison of dark matter simulations to i>observable galaxies, in regions where the baryons are expected to dominate. The satellite problem in particular, has a lot of natural solutions that do not involve new particle physics or new kinds of dark matter (the most plausible basic idea is that small galaxies that form after the universe is reionized are destroyed by ionizing photons; under reasonable assumptions, this would predict almost exactly the discrepancy that is seen between the number of small halos and small galaxies). It is still unclear whether the central densities and concentrations of dark matter halos are in agreement with the data, but determining this requires really understanding the connection between dark matter and galaxies, which are extremely difficult to simulate from first principles.

Aaron– Yes, there are some issues with CDM on small scales. Dark matter seems to be less centrally concentrated in the real world, and the number of small satellite galaxies seems to be smaller, than simulations would lead you to predict. However, these issues arise at precisely the point where neither the observations nor the theoretical predictions are very good. At these scales, the messy baryons (with all their unfortunate dissipative tendencies) become dynamically important. Recent work seems to be indicating that the satellite problem, at least, may simply require better observations and simulations to be explained away. (Risa may chime in here.)

People have tried to play with dark-matter properties to see if the situation might be improved. My non-expert impression is that the models don’t really seem to improve things. Probably the whole thing will just go away, but it hasn’t quite yet, so there is still some hope that what we’re seeing is somehow related to new physics.