A pair of unrelated papers, which appeared in Physical Review Letters, and a News and Views article in Nature Physics all indicate that progress is occurring, but it is coming at the expense of a long-cherished tenet of physics, called the Lorentz Invariance.
Until recently, the general consensus was that string theory was the great hope, but physicists have been rocked by the discovery that string theory still requires a bunch of fine-tuned values to get to the universe we observe.
This depressing state of affairs has led to reappearance of the anthropic principle, which, while begin very deep and meaningful, also finds itself in the embarrassing position of stating the bleeding obvious. Which leads us nicely to a paper by one Petr Hořava, brought to my attention and nicely explained in the Nature Physics News and Views article. Hořava takes advantage of a recent finding that, in quantum mechanics, the universe behaves as if it has four dimensions at larger scales, but this can be reduced to two dimensions as the scale is reduced. This implies that space and time may be fractal in nature—not a new idea, but it's always nice to have evidence to support the idea.
To summarize the reduction procedure, space and time are treated separately, which would normally cause all sorts of problems in quantum mechanics. However, by treating space and time differently as well as separately, the infinities in the quantum mechanics equations vanish, and gravity behaves as it should.
Interestingly, space remains the same in all directions, while time does not. This appeals to me, because it points to fabric of the universe supplying time with a preferred direction. One of the downsides, though, is the failure of Lorentz invariance.
To understand why physicists might be loath to give up Lorentz invariance, let's take a quick look at it. A key idea, going way back to Galileo is that all accurate observations are equally valid and must agree. A simple example of this is cars on a motorway. I am cruising along at 120km/h but, to me, my car appears to be standing still. An overtaking car appears to me to be traveling at 20km/h, while a person on the side of the road will see speeds of 120km/h and 140km/h. Now, although we all disagree on the speed of each car, we can, given some information, understand each other's results and reach an agreement. These sorts of transformations, based on Lorentz invariance, are a key part of physics and are founded on a certain conception of space and time.