The reason I think this movie is so interesting is because it shows just what is possible when a free software tool is placed in the right hands. The "right hands" in this case appear to be quite numerous, and although the software itself is free that's not to say there wasn't money involved in this project. No, it's probably not machinima (and I'm not going to try to offer a definition of machinima here, there are too many trolls out there ready to take exception), but the spirit behind the project shares something with the spirit of machinima. That is, just because you're not a full time professional animator with access to artists, modellers, and render farms, doesn't mean you can't bang out your own modest little animation. That said, Sintel isn't really a modest little animation - it's a slick, atmospheric short which combines beautiful visuals with terrific sound mixing.
Watch it, enjoy it, don't try to figure out what it is and what it isn't, and reflect on the idea that maybe one day the machinima tools that we all use might yet be capable of something of this calibre.