It depends on how you produce the hydrogen!
This for example would be a great solution... although I can see some protests from the oil companies!
http://www.treehugger.com/files/2007/01/the_solarpowere.php
The other side is that, as yet, very little research has been made into improving the efficiency of producing hydrogen. I'm sure with a bit of investment, they could vastly improve the carbon emissions from hydrogen production. Also, you shouldn't just compare the carbon costs of hydrogen production to the exhaust levels of a car alone, but you also have to add in the carbon cost of the fuel refining process and the transportation of the crude oil and so on. There are no raw material transport required for Hydrogen!