If you're not averse to using Ajax to generate the live preview, then another option is markItUp!. markItUp! is a universal markup-editor, and very flexible. It does provide
an easy way of creating a markup editor, but unlike WMD, it doesn't provide its own live preview.
I used markItUp!, along with a simple JSP (using MarkdownJ) for one of my open-source projects (a Markdown plugin for Roller). If you're using another server-side technology, replace that simple JSP as appropriate.
I actually starting using this before I came across WMD. I'd agree, WMD is great, but has only just been open-sourced and is, at this stage, more difficult to customize the behavior of.