Announcing ModInstallLocation. Its function is simple - it enables installation of applications to external storage on Froyo. One caveat though - it requires root.
By default Froyo enables apps to be installed on external storage only if the app developer allows it. This makes sense as not all apps are suited to run from external storage due to a simple fact - it's a removable storage and can be removed (either physically or when mounted as a USB mass storage device). Hence services, alarms, widgets, etc. (see here a comprehensive list) will probably not work if installed on external storage.
ModInstallLocation runs 'pm setInstallLocation' behind the scenes (thanks for the folks at XDA developers for discovering this) allowing any app to be installed on external storage. If you don't know what this means, this isn't for you. Once installLocation has been set to '2', you'll be able to move your apps from phone to SD card in 'Settings' -> 'Manage Applications' -> Select an app -> 'Move to SD card'.
p/s: I'd publish this in AndroidMarket but it looks like there's a bug that's preventing apps that targets SDK v8 from being published.
Update: Sources are at github.