This isn't exactly a Public Sector application of Virtual Earth but it certainly doesn't take much imagination to see how this commercial application could lend itself to our military and intelligence agencies, and anyway it is just too cool not to share.
IFly.com is using Virtual Earth to allow web site visitors to track flights in real-time. This is really cool in 3D. You specify flight info and it visualizes the aircraft along its flight path and when you mouse over the plane, it gives you lat, long and altitude. Watch for a few moments and the position of the plane onscreen moves according to its adjusted position.*