The question about nitrogen in tires has come up in other lists on the web as well. Let me clarrify a few points.
1. Air is 78% nitrogen, N2, and 21% oxygen, O2. So even if you put air in the tire, it's already 78% nitrogen. Many of the so called nitrogen generators don't produce much more than 90% nitrogen.
2. At relatively low pressures (ie tire pressures) N2, O2 and water vapor will all behave as ideal gases, and follow PV=nRT. Pressure will increase or decrease to the same extent as the temperature increases or decreases regardless of which gas is in the tire. (Even at 300 psi, which is about 20 atm, there is little deviation from ideality.) Therefore the comments about N2 not changing in pressure as the temperature changes are without merit.
3. The rate of effusion (or diffusion) of a gas through a porous membrane depends on the molar mass and to some degree on the molecular diameter. N2 and O2 are almost the same size and N2 is lighter than O2 (28 g/mol vs 32 g/mol) so if either gas were to effuse out of the tire, nitrogen would do it more quickly. Luckily, tires are designed not to be porous membranes.
4. N2 and O2 both have essentially the same specific heat capacity, about 1.0 J/gK, and thermal conductivity, about 0.00026 W/cmK. Water vapor has a specific heat capacity of about 2 J/gK. But remember, water vapor will constitute less than 1% of the air in the tire. So the idea that N2 has different heat handling properties is also without merit.
5. The ozone, O3, in the atmosphere, which is a ground level pollutant, will do a great deal more damage to your tires than the O2 inside the tire. For instance, don't leave a condom out in the air in Los Angeles for a few days. It will develop lots of tiny holes and weaken.
spdracer22 says that dry air is preferably to air with a lot of water vapor. As a tire heats up, the very small amount of H2O present will be in the vapor state which may contribute to the overall pressure very slightly.
Several have suggested that N2 in a high pressure tank is more portable and requires no electricity. That would make sense, particularly for aircraft tires.
I find no reason to believe that N2 is going to produce a "better ride" or "better handling".
The bottom line is that for general passenger car tires or truck tires there is nothing to be gained (other than portability) by using nitrogen rather than air. The biggest gain will be $$$ by the companies that sell nitrogen handling equipment and the tire merchants that appeal to ignorant customers. And who is the biggest loser? Yep, the consumer.
