It can do more than just restore some lost files...use it to recover your entire system!!!
Once booted, I formatted the new hard drive and then from the menu bar selected Utilities > Restore System from Backup... This brought up a dialog to let me select the Time Machine source drive to use. I'll be curious to see if the restore utility will be able to find Time Machine volumes on the network, say in Time Capsules, but that will be a test for another day. In any case, the only catch I can see is that your disk has to be visible to the system without any special drivers. This rules out putting your Time Machine volume into an external eSATA enclosure hooked up to a card that requires drivers to work. Most of you probably don't fall into the situation, so don't sweat it. Use a Firewire, USB, or extra internal disk and you're golden.
In the morning, my system was fully restored. After rebooting, everything was right where I left it. Well, that's not entirely true. Not quite everything was there. Time Machine doesn't back up data that can be reconstructed, such as caches and indexes. This means that Spotlight will have to rebuild its index and won't be immediately available. It also means that when you launch Mail, it will think it's the first time it's been launched and will go through a "Welcome to Mail" process where it imports all of the mail messages that are on your system. It's not downloading things from your IMAP server, just recreating its database.