The good news is the TEST network is doing its job-- the problem patched by the 0.3.6 release (invalid transactions accepted as valid) was implemented and demonstrated on the TEST network.

The bad news is that means the TEST network block chain split yesterday.  If you are, or were, running a release prior to 0.3.6 on the TEST network, you've got bad blocks in your blkindex.dat and blk0001.dat files.

So, you need to:
1. Shut down bitcoin or bitcoind
2. Remove the blkindex.dat and blk0001.dat (in ~/.bitcoinTEST or ~/Library/Application Support/BitcoinTEST or %APPDATA%\BitcoinTEST) files.
3. Be sure you're upgraded to 0.3.6
4. Run bitcoin/bitcoind, and you'll download the "good" block chain.

Any blocks you generated after the bad blocks are invalid, so if you were busily generating blocks on the TEST network in the last couple of days... sorry, that play money is gone.

Transactions that you made may or may not make it to the new block chain, depending on whether or not they originated from invalid coins (any coins generated after the bad blocks are invalid).

Yep, you're right.  The good fork is longer than the bad one now; the last ORPHAN BLOCK my TEST bitcoind got was about 20 hours ago.