The first thing to understand is that the UnhandledException event is not an unhandled exception "handler". Registering for the event, contrary to what the documentation says :-(, does not cause unhandled exceptions to be handled. (Since then they wouldn't be unhandled, but I'll stop with the circular reasoning already...) The UnhandledException event simply notifies you that an exception has gone unhandled, in case you want to try to save state before your thread or application dies. FWIW, I have filed a bug to get the docs fixed.
Just to complicate things, in v1.0 and 1.1, an unhandled exception did not always mean that your application would die. If the unhandled exception occurred on anything other than the main thread or a thread that began its life in unmanaged code, the CLR ate the exception and allowed your app to keep going. This was generally evil, because what would often happen was, for example, that ThreadPool threads would silently die off, one by one, until your application wasn't actually doing any work. Figuring out the cause of this kind of failure was nearly impossible. This may be why Jeff thought it worked before...he just always saw crashes on non-main threads.
In v2.0, an unhandled exception on any thread will take down the application. We've found that it's tremendously easier to debug crashes than it is to debug hangs or the silent-stoppage-of-work problem described above.
BTW, on my 1.1 machine the example from MSDN does have the expected output; it's just that the second line doesn't show up until after you've attached a debugger (or not). In v2 we've flipped things around so that the UnhandledException event fires before the debugger attaches, which seems to be what most people expect.
Jonathan Keljo
CLR Exceptions PM