One of the retirement account reform provisions contained in the Pension
Protection Act of 2006 permitted non-spouse beneficiaries to transfer their 401k funds into an
inherited IRA and take advantage of "stretch" distributions over their lifetimes instead of
being subject to 5 year payout rules.  Unfortunately, the IRS issued a Notice which provided that this provision was permitted at the discretion of the plan administrators, but was not mandatory.  Congress has stated that this optional treatment was not intended, and corrective legislation has been proposed.  The IRS has now reversed its  position, and stated that, beginning  with 2008, non-spousal rollover will be required as an option. 

http://www.irs.gov/retirement/article/0,,id=173372,00.html