Jack Szostak, a molecular biologist at Harvard Medical School, is building simple cell models that can almost be called life. Szostak described preliminary new success in getting protocells with genetic information inside them to replicate.
Wired magazine had an article on this work other sources below are Jack Szostak's site and his research paper linked and excerpted below.
UPDATE: Jack Szostak's site on replicating vesicles
What are the key components of our cell?
A self replicating compartment boundary - ours will be a membrane made of simple fatty acids
A self-replicating genome for the transmission of heritable information - ours will be made of RNA, so our goal is to evolve and RNA molecule that is an RNA polymerase
Some mechanism must allow changes in the genome to confer a selective advantage on the cell as a whole. This linking function would be a lipid-synthesizing ribozyme, a structural RNA, or a direct effect of RNA replication on vesicle growth
Research paper: Template-directed synthesis of a genetic polymer in a model protocell published in Nature
Szostak's protocells are built from fatty molecules that can trap bits of nucleic acids that contain the source code for replication. Combined with a process that harnesses external energy from the sun or chemical reactions, they could form a self-replicating, evolving system that satisfies the conditions of life, but isn't anything like life on earth now, but might represent life as it began or could exist elsewhere in the universe.
"We've made more progress on how the membrane of a protocell could grow and divide," Szostak said in a phone interview. "What we can do now is copy a limited set of simple [genetic] sequences, but we need to be able to copy arbitrary sequences so that sequences could evolve that do something useful."
"Once we can get a replicating environment, we're hoping to experimentally determine what can evolve under those conditions," said Sheref Mansy, a former member of Szostak's lab and now a chemist at Denver University.
Protocellular work is even more radical than the other field trying to create artifical life: synthetic biology. Even J. Craig Venter's work to build an artificial bacterium with the smallest number of genes necessary to live takes current life forms as a template. Protocell researchers are trying to design a completely novel form of life that humans have never seen and that may never have existed.