What does it really do ?

Yes, what does this module do? I'm also interested in hearing from people in the community who have the module up and running.

Looking at the code, it embeds the moodle site index_dr.php page within the drupal site inside of an Iframe. It looks like it passes the drupal user name and password in the url.

That's correct. Versions prior to 6.x-2.0 embed Moodle in an iframe and provide an SSO capability by passing username and password on the URL, and having Moodle configured to use Drupal's database for authentication.

With the upcoming 6.x-2.0 release, SSO and iframe are removed. What's left, one might say. Now this module will begin to display data from the Moodle database in Drupal, using a web services interface (i.e. Drupal will not require direct access to Moodle's database, only be able to access Moodle's URLs).

SSO capabilities will be implemented in the moodlesso module.