I put a pretty comprehensive write up about this in another thread, tweaking it and putting it here so there's an actual answer:
Here's a summary of the engine differences. The 03-06 had great peak HP, but the midrange suffered. The 07-09 made up for that but sacrificed peak HP. Both are typical problems of adapting a sportbike engine. The new engine manages both, which can be attributed to a purpose-built engine. Take a look at the Sport Rider dyno charts to see what I mean. Here are some links and a few observations of each:
2003 Z1000 - Check the power dip and flat spot ~4,500 RPM. Ouch, but great top end. Midrange power really hits 6,500 RPM and pulls strong all the way from there.
2007 Z1000
HP Torque - Look how smooth the HP is, but where did the old top end go? Midrange comes in earlier at 5,250 RPM, but drops off at 9k RPM. This is arguably better for the street than the '03.
2010 Z1000 - HP combines the top end of the '03 with the smooth delivery of the '07. Midrange power hits hard as low as 3,500 RPM and doesn't stop till redline. You can tell this is a purpose-built engine.
How noticeable is all that when riding? It depends on your background. But it's easy to look at the dyno charts and understand why some might make a big deal about the performance differences - especially someone who gets to put a few hundred miles on each bike. All of that is aside from the other performance enhancements in the new model. Better frame, better suspension, lighter weight - all of those add up. The Zs have always been good bikes that were outstanding with some aftermarket work. The new one is great right out of the box and that's wonderful news for everyone who loves naked bikes.