It is now configurable and mutes Yells, player and NPC; Emotes, player and NPC; Duel outcomes and Drunken behaviour; Tradeskill messages (off by default); in all the Major Cities and the Goblin Cities.
It also turns off all channels in ChatFrame1 when entering an Instance or Battleground and turns those that were on before entering back on when exiting.
This version is r10143 from the Ace SVN and includes all the library files that are required for it to work.
Edited 05-09-2006 - r10245 now fixes a problem whereby all channels were muted when entering an Instance/Battleground. This has been changed to only mute the Local and World Defense, General and LFG channels. The latter 2 can be enabled if required.