Edward Nelson has now announced a proof that Peano Arithmetic (and even the weaker Robinson Arithmetic) is inconsistent. His proof is not yet fully written up, but there's an outline (see the previous link). Terry Tao (whose judgement I trust, since this goes beyond my expertise) reports on John Baez's blog that he believes that he knows where a flaw is.

Edit: Terry and Nelson are now debating live on the blog!

Edit again: I should have reported long ago that Nelson has conceded defeat.