I always heard that diesel is less expensive to produce. Modern diesels have come a long way in the last decade. They are much cleaner, and of course more efficient. They typically have a 30-40% improvement in fuel economy, with a similar improvement in carbon dioxide emissions compared to gasoline engines. When you take into account the lower maintenance and greater longevity of diesel engines, they are highly regarded as being an environmentally friendly solution. Remember also, hybrids, being touted as super environmentally friendly cars, have massive batteries. These don't last forever, and their production and disposal create major environmental concerns of their own.
The diesel fumes you smell in European cities is from the old diesel engines still running around that admittedly are smelly and loud. You cannot say the same about modern diesels. Besides, new particulate traps used in Peugeot and Mercedes-Benz diesels are able to trap something like 99% of these particulates, filtering them so they are not emitted into the air we breathe. These traps are very new, allow diesels to meet very stringent requirements being imposed by both European and American emissions regulations, and will likely be used by all other diesel engine manufacturers in the near future.
The big drawback to implementing these technologies in the United States at this point is the high sulphur content in diesel fuel compared to Europe. Once ULSD is introduced in 2006, that will also change.
"it's kind of like an Airbus, it's an engineering marvel, but there's no sense of passion" -- J. Clarkson re: Coxster