It is spreading - to Indonesia (more here), and possibly Siberia:

Jul 22, 2005 (CIDRAP News) – A news report from Russia today said that an H5 strain of avian influenza has killed hundreds of poultry in Siberia, though a Russian report to the World Organization for Animal Health (OIE) said the disease was still unidentified.

The outbreak was reported in the Novosibirsk region of southwestern Siberia. If it turns out to be H5N1 avian flu, it will mark the virus's first known extension into Russia and Central Asia. The virus has plagued much of Southeast and East Asia since late 2003 and infected more than 100 people, killing at least 55.

The outbreak was described as an H5 avian flu in a report from the Russian news service Newsru.com, which quoted Alexander Shestopalov, head of the zoonoses laboratory at the State Scientific Center for Virology and Biotchechnology ("Vector"). (The report was translated and published by ProMED Mail, a service of the International Society for Infectious Diseases.)

"Further serotyping of the virus is expected today Fri, 22 Jul 2005," Shestopalov was quoted as saying.

Ducks, which may have become immune to the virus, may have also become a viral reservoir:

WASHINGTON (AP) -- Changes in the avian flu virus have made it less deadly to ducks, potentially turning them into medical Trojan horses where the flu can hide while continuing to infect other birds and humans.

Waterfowl such as ducks have been natural hosts of this type of influenza before but rarely became ill from it until 2002, when an evolving strain killed of a large number of the birds.

Since then, however, the virus has continued to change, reverting to a form less dangerous to ducks but still able to cause illness and death in chickens and humans, according to a study in Tuesday's issue of Proceedings of the National Academy of Sciences.

"These results suggest that the duck has become the Trojan horse of Asian H5N1 influenza viruses," reported a research team led by Robert G. Webster of St. Jude Children's Research Hospital in Memphis, Tennessee.

"The ducks that are unaffected by these viruses continue to circulate these viruses, presenting a pandemic threat," the team said.

The World Health Organization is worried about a potential massive outbreak of the virus among humans:

The world could at any time be faced with a massive flu outbreak like those in 1918 or 1968 that killed tens of millions of people, the World Health Organization warned, urging countries to be prepared.

"History has told us that no one can stop a pandemic. The question is: when is it going to happen?" WHO spokeswoman Margaret Chan told reporters.

"I don't think anybody has the answer to it. We have to be on the lookout for any time, any day," she added.

Deadly avian influenza, which has killed 55 people in Asia since resurfacing in 2003, has the potential to become a major human pandemic if the virus were to mutate and allow human-to-human transmission, Chan said.

The HN51 strain of bird flu, which has killed hundreds of thousands of birds, constitutes one of several "warnings from nature" -- the first since 1968, according to Chan, Hong Kong's director of health from 1994 to 2003.

"We collectively, particularly national authorities, have to take a very conscientious decision: if you are given early signals and if you are not prepared, you have a very difficult case to answer if indeed it happens," she said.

"Our experience is that if you are prepared for a pandemic, you get less impact in terms of mortality, morbidity, social and economic disruption."

Chan admitted that preparation for a possible flu pandemic could divert resources from other health emergencies like the fight against AIDS or polio, but said such measures would improve the tracking of life-threatening diseases.

After Indonesia earlier this week announced its first human deaths from bird flu, and cases were reported in Siberian poultry, Chan warned that "the scope is getting wider and wider".

The WHO's greatest fear is that human influenza and bird flu could somehow combine to unleash a pandemic on the world.

A doctor at Vanderbilt University is quite worried:

A Vanderbilt doctor warns that the avian flu could make the 1918 flu pandemic that killed more than 50 million people "look like a tea party."

There have been 54 deaths from the 107 cases of avian flu in 11 Southeast Asian countries since 2003, according to the World Health Organization.

"The mortality rates are 60%," said Dr. Kathryn Edwards, the vice chairman of clinical research at Monroe Carell Jr. Children's Hospital at Vanderbilt. "Getting a vaccine developed is critical."

The gravest fear would be realized if the Avian flu virus mutates, such that human to human spread would be possible. In the Indonesian cases, the Avian virus was the apparent cause of death of a father and his two daughters, but it is not clear whether the flu was passed from him to his daughters, or whether they were all simply exposed to the same viral source. Interestingly, none of the three was known to have had any contact with poultry. But some are skeptical that human to human spread of the virus occurred:

Though there was no evidence that the three victims had been exposed to infected poultry, Supari said person-to-person transmission of the virus seemed unlikely, according to an Associated Press (AP) report. She said the virus strain that killed them had not mutated.

"It's the conventional H5N1 virus and not a new strain," Bloomberg News quoted Supari as saying.

If the father did pass it to his daughters, this would be one of the first known instances of human to human spread of the Avian flu.
It may have happened before:

Only one probable instance of person-to-person transmission has been documented so far, that of an 11-year-old Thai girl who apparently passed the virus to her mother and an aunt last September. Person-to-person transmission was also suspected in some family case clusters in Vietnam this year.

Also, a drug that has been approved for use on influenza has shown some promise in suppressing a strain of Avian Flu in Vietnam:

WASHINGTON (Reuters) - Roche's influenza drug Tamiflu suppresses the often deadly avian flu strain seen in Vietnam, which experts fear will soon cause a human pandemic, U.S. researchers said on Monday.

They said tests in mice showed the drug, licensed for use against influenza in general, could suppress the newest strain of H5N1 virus that is sweeping though flocks of poultry in Vietnam, Cambodia, China and elsewhere in Asia.