Yes, it is happening. NxtPrivacy comes later
NxtServices, which Multigateway forms a part, basically links you BTC and Nxt addresses together. You don't store your coins on Multigateway like you did with MTGox.
It is almost trustless at the moment based on three multigateway servers agreeing with each other before allowing the cross chain transaction. jl777 admins 2 of them and bithaus will admin the third, the idea is that each new prominent business will admin another server. jl777 originally planned 100 servers but there will be a bootstrapping phase to get up to this. You would then have to compromise them all to crack multigateway.
This is my understanding, james will probably correct me if I am out of date