Garry's Mod is a thing of beauty. Many Machinimas and wacky videos from the Half-Life universe have all been possible thanks to Garry (and the awesome Concerned comic too). The latest version of Garry's Mod is going through some beta testing right now and works with Team Fortress 2 and Portal; as you can see in these hilarious pictures.
There's a bunch more picture over at this NeoGaf thread of the latest Garry's Mod in action. I can see that the animation style of Team Fortress 2 is going to really get people to produce some fun stuff.