Something to be aware of:

iTunes 5.0 currently ignores your preferences and doesn't remove podcasts from your iTunes library. For example, you might specify (as I have) that you want iTunes to keep all unplayed episodes, and indeed it will remove the episode from the Podcast library. However, you'll notice if you search the main library that the old episodes are still hanging around. You need to remove them by hand to get rid of them for good.

This ate about 600Mb of space on my drive, and I've filed a bug report with Apple. If it annoys you as well I'd recommend you do the same.