We've had a lot of questions asking why one would pick one technology over the other. Here are some thoughts on the subject.
Z-Wave routing is, in theory, much better than INSTEON since it is a routed protocol (vs a broadcast network like INSTEON). Collisions on a Z-Wave network should be extremely rare whereas they can get very common on a busy INSTEON network. In practice, however, updating routing information on a Z-Wave network is a bit tricky since the protocol isn't self-healing (ZigBee should be much better at that for instance). We've done some work along those lines already to make this less of a problem for users and will probably be doing more as time goes by. It's still much better than INSTEON even with the healing issues on this front.
Range issues are more pronounced with Z-Wave than with INSTEON because of INSTEON's dual-band nature so that's an advantage for INSTEON. INSTEON also probably has a more fully thought-out intra-device linking mechanism. Z-Wave's device linking seems to be sporadically (and sometimes incomprehensibly) implemented by vendors.
On the other hand, INSTEON has the sometimes significant issue of power line signal noise that many people run across with which doesn't exist with Z-Wave. One of the biggest downsides of the current crop of dual-band INSTEON devices, in our opinion, is that if there is a lot of power line signal noise, they'll stop working despite the fact that they're dual-band. Another issue is a low-level one: collisions. When INSTEON networks get large (say, 80+ devices), you'll start seeing communication issues because multiple devices will try talking at the same time (that's called a collision). Most technologies include robust collision detection features to mitigate the problem - unfortunately INSTEON doesn't seem to do a very good job.
Then there's device availability - there is quite a bit of competition on the Z-Wave side but none on the INSTEON side. There are device types available on Z-Wave (sirens, water valve shutoffs, etc) that aren't available on INSTEON (or require multiple parts) and there are INSTEON devices that don't have any Z-Wave equivalent (sprinkler controllers, etc). One of the biggest problems with Z-Wave device selection is with controllers - most aren't implemented in any standard way and sometimes they just don't work very well. The INSTEON KeypadLinc, by comparison, is very easy to work with and is quite reliable.
It's our feeling that both have positives and negatives. We expect that some users may in fact end up using both (see the next section) because of device availability and other factors. We like both.
We've also had several inquiries about using INSTEON and Z-Wave together. You definitely can do that (we do it ourselves). They use different frequencies for RF so they won't interfere with each other. You can also use X10 (and X10RF) as well, all at the same time.
Just like INSTEON and X10, you need an interface to plug into your Mac that will enable Indigo to communicate with the Z-Wave network. As long as you have a free USB port to plug the Z-Wave interface into, you can use both. From Indigo's perspective, they are all just devices regardless of protocols. With Indigo, you can easily and seamlessly integrate devices of each protocol together. Have a button on an INSTEON KeypadLinc turn on/off any kind of device (Z-Wave, INSTEON, X10, etc). Have a Z-Wave motion sensor trigger any action in Indigo, including controlling an INSTEON device.
A huge advantage to using Indigo is being able to tie all of the various device types across the various protocols into one consolidated and easy to manage whole. Where some protocols may be lacking (i.e. there are no Z-Wave sprinklers), you can mix and match.
An advantage to using both technologies simultaneously is that you avoid the problems with large networks. Both INSTEON and Z-Wave have practical limits on the number of devices in a single network. By splitting your devices between the two, you can have more devices and maintain a reliable system.
Some users have asked us how we would split our devices among the two protocols. So far, our experience is this:
Z-Wave is best for sensors, thermostats, and other devices that broadcast out data. The protocol handles signal collisions (multiple devices trying to talk at once) much better than INSTEON. Also, you'll find a much broader selection of these types of devices for Z-Wave.
INSTEON is better for traditional lighting control (relays and dimmers), scene controllers (KeypadLincs and RemoteLincs), and sprinkler controllers (don't know of a Z-Wave one yet). The ability to directly link INSTEON devices is a big advantage in our opinion.
Of course, this is just our opinion - you will likely find the right mix for your environment.