On this Wiki page, Alan explains how this hardware abstraction layer for Linux and other operating systems is currently in use for finding input devices, being notified of input device hot-plugging, mapping system input devices, and setting input device options. X.Org has been using HAL since X Server 1.4 and it continues to be used in the most recent X Server 1.7 series, but the migration away from HAL will likely be completed in time for X Server 1.8. This next version of the X.Org Server is planned for release in March.
In replace of HAL in the X Server will be a lot more of OS-specific code to the operating system's respective libraries for device enumeration and device notification. On Linux this means connecting a lot of libudev directly into the X Server. Instead of the input device options being stored in HAL FDI files, the X Server will begin supporting a xorg.conf.d directory for handling input driver options. These new files will utilize a new syntax for matching the options with the respective devices. While the X Server will be picking up this directory support, editing the xorg.conf will remain supported and a valid option.
This code is not yet in place, but it's the current plans for dropping HAL from the X Server for input devices, since the upstream project itself is stopping development in favor of supporting DeviceKit and other projects.