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Earlier the domain name keywords mattered quite a bit for the search engines, but it doesn't seem to be that important today.

But there are still a few nice indirect advantages by separating keywords with hyphen in domain names.
Incoming links to your site are counted as "votes" for your sites, and the more "votes" you have the better your site ranks, right??
Almost right...

One important thing about links that many doesn't seem to know about is that the achor/link text is very important to search engines.
example
The link/anchor text actually tells the search engines quite a lot about what your site/page is about,
and they pay very much attention to it when calculating your ranking for specific keyword searches.
So if you sell "Nice Blue Widgets" and wants to target that search phrase in SEs
then it's very important to get many incoming links with that anchor text, or variations of it like this:
Here a SE sees that someone links to you with the anchor text "Nice blue widgets"
and then it gives (most of the time) a better ranking to your site when people search for that phrase.
And the more incoming links you have like that the better you will rank for that phrase..
But too many similar links isn't good either, so it's a good idea to vary the anchor text a bit to maybe
"Blue widgets", "Nice Widgets", "Blue Nice Widgets" etc...

And many just use the words "click here" as anchor text, and as you can see from this Google search
the competition for those "keywords" are pretty fierce..
http://www.google.com/search?hl=en&q=%22click+here%22

But back again to hyphens...

And one of the most common ways to link to other sites, especially from blogs, forums, comments etc.
are just to type in the URL and the script antomatically creates a link.
That link will look something like this in the source code and for search engines, if you use hyphens in your domain:
And since search engines looks at hyphens as space and ignores the period mark,
then you will have the following words as anchor text for them "www keyword1 keyword2 com".

So as you can see there hyphens do matter when it comes to SEO since you get a "free" good
and targeted anchor text from links like that.
Google can separate some keywords even if you don't use a hyphen,
but it's much more difficult for SEs if you use keyword1keyword2.com ...
Just a quick example: Penisland.net
What's the keywords there???
Yep, it's Pen Island. A website that sells pens.. That was what you thought, right??