This is a wonderful translation. I first read Quixote seriously in the Putnam, and was completely swept away by it - the prose was just as readable as it is here, and Putnam communicated a love for the text in his notes (as well as a hatred for the translators that had butchered it before) that was a nice accompaniment to the actual story.
Grossman's language is smoother, and I suppose Putnam's prose does have the dust of fifty odd years on it - but that isn't necessarily a bad thing. I don't mind if an old book reads a bit like an old book: slightly dated English gives a book a certain flavor. I like Putnam for the same reason I enjoy Maude's translations of Tolstoy. Grossman does write a better sentence, I think, and she certainly doesn't make the book any more colloquial than Cervantes did - although I was annoyed at her constantly having Sancho say Wassup.
Putnam's Quixote, incidentally, is filled with notes: more notes than most people who aren't scholars will want. Every one of Sancho's proverbs is explained (and those aren't exactly the comic high point of the book, either) and he constantly takes potshots at Motteux and other translations, a la Nabokov when he translated A Hero of Our Time. They're sort of funny, but eventually you want him to get out of the way of Quixote, which is what one actually wants to read - not the translator's thoughts.
But then again: a note can easily be skipped, and it's nice to have the extensive information that Putnam packs in, about the historical situation in Spain, potential variant readings of a passage, all the brouhaha about the fake second half of Don Quixote that actually ends up having a part in the book - and lots of other stuff.
Still, a good translation of a book that can be read a hundred times in a hundred different ways is always worthwhile. Don Quixote truly never stops being funny or sad (especially when you know which parts can be skipped the second and third time around) - people who expect a dreary classic will be surprised to find an author that is as relevant today as he ever was.
(Kidding about the Wassup.)