The FAQ section of the ESTA website states:
If you have an approved ESTA when entering the U.S. at a land border crossing, you will NOT be required to complete the paper I-94W form and your entry process is expedited.
However, I have read in forums, and heard from CBP officers at various land border crossings (whom I've called) that in practice, at many border crossings they still require ESTA holders to fill out the I-94W form, except if first having entered by air or sea, then making a short trip to Canada or Mexico and then re-entering the US by land within the 90-day admission period.
What is the current situation? Anyone with experience?