[JimmyL]

Delaware has the Delaware Court of Chancery (http://en.wikipedia.org/wiki/Delaware_Court_of_Chancery), which is where most business-related issues are heard in the state. It's got a long and established record of well-understood precedents, professional management, and no juries. This make is much easier for corporate lawyers to figure out how a case will go, and then react accordingly.

It's slightly favorable tax-wise (it's got a relatively simple code) and had a high cap on interest (which banks can no longer export, IIRC) - but mostly it's the judicial system that makes it popular.