Variance will only be supported in a safe way - in fact, using the abilities that the CLR already has. So the examples I give in the book of trying to use a List<Banana> as a List<Fruit> (or whatever it was) still won't work - but a few other scenarios will.
Firstly, it will only be supported for interfaces and delegates.
Secondly, it requires the author of the interface/delegate to decorate the type parameters as in (for contravariance) or out (for covariance). The most obvious example is IEnumerable<T> which only ever lets you take values "out" of it - it doesn't let you add new ones. That will become IEnumerable<out T>. That doesn't hurt type safety at all, but lets you return an IEnumerable<string> from a method declared to return IEnumerable<object> for instance.
Contravariance is harder to give concrete examples for using interfaces, but it's easy with a delegate. Consider Action<T> - that just represents a method which takes a T parameter. It would be nice to be able to convert seamlessly use an Action<object> as an Action<string> - any method which takes an object parameter is going to be fine when it's presented with a string instead. Of course, C# 2 already has covariance and contravariance of delegates to some extent, but via an actual conversion from one delegate type to another (creating a new instance) - see P141-144 for examples. C# 4 will make this more generic, and (I believe) will avoid creating a new instance for the conversion. (It'll be a reference conversion instead.)
Hope this clears it up a bit - please let me know if it doesn't make sense!
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