Water shortage is a problem and has been so for some time. When it comes to resource wars it will soon replace oil in some regions. Indeed it is already a cause of friction in some cases. (E.g. Egypt's opposition to Ethiopia's damming of the Blue Nile.)
The last thing we need as a species is for climate change to make matters worse by creating droughts and changes to precipitation patterns. By making them more intense they are more likely to be shed into above ground features such as streams and rivers instead of having time to seep downwards and replenish much denuded aquifers.
Projects such as this one will become the norm as the human population continues its inexorable growth and with its demand for water. As for the 'ick' factor, I imagine that will become irrelevant when the only option is to drink water from such sources. Anyway, isn't it a fact that every water molecule has been drunk before?
Apple are to be commended for their support for this project. I hope that they can maintain their altruism by making any science the project reveals open-source and thus available to all.

It surprises me to see that there is evidently public objection to a "closed" water system. In fact, I expected that by now, each home would have its own waste water processing station in the basement, next to the furnace. The water out of it would be cleaner than what I now get from the city.
All "save the planet" aside, city water is getting dirtier and more expensive every year. In-home processing is the obvious solution.

>a multi-step system of microfiltration, reverse osmosis and ultraviolet rays to produce water of higher quality than typical drinking water.
But initially this water is to be used to irrigate grass and crops? There is no better filtration method that is more effective than Mother Nature's. As Mel says above, every molecule of the earth has been around the block a number of times. It is essential. Why then, aren't systems like this used to desalinate sea water, which is right there next to California? This is inevitable.
Especially if high pressure fracturing continues unabated, and ends up contaminating underground water aquifers.

Strangely, California has completely missed the idea of spreading volcanic ash on its irrigated fields. This would reduce water consumption by 50% while maintaining the same crop yield. Since agriculture uses 80% of the water in the system, you'd think they would have jumped on this idea...

Sewage water drinkable, how the hell are you going to sell that ? label states.. may have contained turds and urine, but we filtered it real good, We promise !

Waste water treatment plants have been producing water at above drinking quality for decades.

@ Jay Finke
Name one astronaut who has suffered in any way from drinking processed human waste. Or do you think they manage to take all their drinking water up with them in plastic bottles?

@ Jay Finke Every drop of water you have ever drank has been through the bladder of some animal.

Australians have been drinking sewerage ever since Anna Bligh famously took a sip on national television back in 2008

My worry is the female hormones from birth control pills and females urine may not be filtered out resulting in men growing man-boobs, testicles become smaller, and sperm counts drop. This has already occurred in other parts of the world.