Yes, the ADO.NET Entity Framework has been released with .NET 3.5 Service Pack 1.
And no, Entity Framework will not replace LINQ-2-SQL per se - the two have quite different target audiences and have their own, respective target markets.
LINQ-2-SQL is great for simpler scenarios where your business objects are pretty much a 1:1 mapping of your database tables. This is often the case, and in such a scenario, EF is an overkill.
EF on the other hand is great in an enterprise level app where your business domain objects will not necessarily map 1:1 onto tables, or where you need to support multiple database backends beyond MS SQL Server.
Even with .NET 4.0, Microsoft is still making investments in LINQ-2-SQL - see Damien Guard's blog post to that effect.
Marc