Pros: Expands on TextEdit with additional features, most important of which is footnoting and endnoting. There is even a feature which allows the otherwise-proprietary footnotes to appear in other RTF reader applications, albeit at the end of the document.
Cons: Whenever using this app, I miss Bean's one-button alt-colors mode and Bean's really great one-button full-screen-and-alt-colors mode, which is soothing and otherwise a great writing environment. But Bean can't do footnotes at all, so...
Summary: The best free text editor/word processor I've ever used is Bean (bean-osx.com). It's a perfect replacement for TextEdit. Unfortunately, Bean purposely (according to its developer) has no support for footnoting or end noting; and it's just not possible to create any academic or scholarly document without footnotes.
iText Express has most of Bean's functions (except the beautiful and functional alt-color and full-screen mode) and includes full footnoting support within the standard RTF format. While it's true that other RTF editors cannot see the "true" footnotes, iText Express has a clever way of exporting all footnotes to the end of a document so that they can at least be read, albeit not on the same page as the reference was made. And of course, the footnotes can be seen properly on the printed page, whether that is an actual paper page or a print-to-PDF document. This makes iText Express useful for serious writing and yet you won't completely lose your footnotes if you need to - someday - continue or edit your work in another word processor.
Both Bean and iText Express work under Lion, but neither has yet been updated to take advantage of Lion features such as Full-Screen (although Bean has its own full-screen mode), Versions, and Auto-Save (although both have their own simple timed auto-save function).
If you don't need footnotes, go for Bean - you can't beat it in the free category, and I find it better for most work than more complex and complete (and expensive) products such as MS Word, Pages, or Nisus Pro.
If you do need footnotes, iText Express is your best choice in the free category. And unlike nearly every other text editor or word processor that has footnote support in the RTF format, you can preserve your footnotes (albeit only at the end of the document) for viewing and editing in other RTF editors or importers.
If the developer of iText Express adds the new Lion features (especially a scaling full-screen mode) and a simple and quick way to "alt" the colors (one-button change of background from white to black, and text from black to white), it will not only be a fine TextEdit replacement, but can take the place of Bean as well - not to mention being a perfectly usable text editor/word processor for the vast majority of people who need one.
There is also an iText Pro which adds some features to iText Express. At $12 in the Mac App Store it's pricey when compared to very full-featured word processors and layout programs such as Pages ($20) and Mellel ($28). However, if the developer manages the updates and changes I noted above it might well be worth it.
As a final note, for any Mac users running older machines with Mac OS X Panther 10.3.9 (which, while old, are still great for tasks like basic web browsing for research, email, and writing tasks), iText Express will run well on such a system. Even the amazing Bean requires 10.4.11, making iText Express one of the best choices for writing on older Mac workstations.