As you mentioned, XPS does seem dead. Part of its lack of traction might be that it requires you to either set your default web browser to Internet Explorer (at least, on Windows XP), or open the XPS file manually in IE (rather than double-clicking it to open).
I'm not sure about Vista and 7, but XPS is annoying on XP if your default web browser is set to something other than Internet Explorer. The XPS viewer opens, but apparently it uses your web browser to do the rendering. On a computer configured with Firefox or Opera as the default, it just causes the default browser to prompt you to open or save the file. If you click Open, it again tries to open it in XPS Viewer, then causes the default browser to prompt you to Open or Save the file (again).
A long time ago I also started saving files in MDI (Microsoft Document Imaging) format. It was a pretty handy format for scanning documents back before there were so many free utilities that let you scan directly to a PDF. I think I can still open them if I install the document scanning component of MS Office, but MDI seems to have been superseded by XPS. If you want to able to open your files in the future, or if you want other people to be able to open them, you're probably best off using PDF.
I've used most of the common PDF printers available, but so far the best one for Windows seems to be PDFill PDF Tools Free. Its included PDF printer allows you to configure a default directory (as well as other default settings). I use it with DirectFolders to quickly find the appropriate directory for saving the PDF file.
Microsoft also has a plugin for Office 2007 that adds a menu item to save (or "publish") to PDF and XPS. It's probably the most convenient way to save Office files in PDF format, but the Microsoft-generated PDF files are always several times larger than the ones created by PDF printers. I assume it's because they're including some extra metadata or they're properly handling document links embedded in within the files.