Short version: He liked Obama's selection of Biden, didn't think Palin was a good choice, having watched her for the past seven weeks, and has a bad taste in his mouth over the usual Republican smear tactics. He called the relationship with Bill Ayers, "Very, very limited...this goes too far." And about the Muslim slurs:
"Stressing that Obama was a lifelong Christian, Powell denounced Republican tactics that he said were insulting not only to to Obama but also to Muslims.
“The really right answer is what if he is?” Powell said, praising the contributions of millions of Muslim citizens to American society."
A wiser person than me put it best: the whole Obama/Osama crap gives the racists an excuse not to vote for Obama without actually calling him the N-word.