Sometime last night, Firefox downloads crossed the 500 million mark. While a significant milestone for the open source software project, it's important to note that this figure includes re-downloads, updating to a new version, or installing the browser on a new computer, so it shouldn't serve as a measuring stick for the browser's popularity.
That said, the popularity of Firefox has indeed climbed steadily in recent years and is now thought to have reached over 125 million active daily users, based on statistics collected internally by Mozilla - though other market share statistics available from third parties suggest a higher number upwards 266 million.
IE7 has helped Microsoft regain some of that lost market share, though we can probably expect to see a surge in favor of Firefox when Firefox 3 is released next year.