UML is currently being used for a wide variety of things.
The largest category of applications is various forms of development. It is widely used for kernel development, since it allows tools like gdb, gprof, and gcov to be used. It is being used by the developers of some distributions such as Trinux and some BBCs, plus related tools such as busybox.
Security applications are another large area. It will soon be used as the basis of a honeypot network and the honeynet.org project is planning on using it as part of its virtual honeynet project. It is also being used to jail services, such as bind and sendmail, which are not well-trusted. Potentially, it can be used in applications, such as web browsers, which need to execute untrusted code in a secure environment.
A number of ISPs are considering using UML to offer virtual colocation services to their customers.
Virtual networking is another large application. UML is mostly used as part of development and testing. The FreeS/WAN group is using UML as their standard testbed.