Well, I'm not actually a Tester (YET!), and as such probably don't have much of a place commenting on this, but here's what I've gathered...
Elemental: War of Magic is, obviously, incomplete. Here are, what I have observed to be, some of the more common problems with the beta in its current state, as well as how that relates to moving on to Beta 2.
[Minor - Major] Bugs - Obviously... I mean, it's a freakin' Beta... But there are TONS of things that fall into this category, so some will be defined in greater detail further on.
[Intermediate] Quests and Heroes - Wouldn't say it's the biggest issue on the block, but it certainly seems to be getting people here and there a little frustrated. Should be fully, or at least closer to, done and implemented before moving on, in my opinion, but as far as the game itself goes, it's a small thing.
[Major] Stability - Biggest problem, by far. While I can't say if a majority or a minority of testers experience this issue, even just a few testers is too many. Some testers are reporting much better stability over the earlier versions of the first phase, but it's still a problem that comes up far too often. As far as moving on to Beta 2, this one's a deal breaker. In my opinion, no go until Stability gets at least more solid.
[Major] Data Management - The Saving and Loading features still seem to be giving lots of people lots of problems. Another obvious must-have before allowing in the next wave of testers.
[Intermediate/Major] Map Generation - Still getting the odd-ball reports of people spawning on top of mountains or surrounded by them or in the middle of oceans, etc etc. Obvious game-breaker, but this one can be phased out throughout the course of the Beta if need-be, and doesn't seem to be a common enough issue, or pressing enough, to delay Beta 2 further.
As you can see, those are some of the larger problems plauging the Beta. I'm sure I've missed some, as I don't have the time nor patience to go sifting through ALL of the threads on these forums.
My opinion: Before fixing the Stability and Save/Load issues, Elemental, as it stands, isn't ready to move forward yet. There are just a couple basic needs that must be addressed first before it's prepared to be opened to myself and the rest of the next wave of testers.
......As one of those waiting 'Psuedo-Testers' however, I wish it wasn't so... 
EDIT: In response to Locklear's comments...
I think it's very good they're asking us. While I'm sure Stardock has their own milestones and what-not in regards to the development of their game, I also think they wouldn't have asked us if they didn't need or want our input.
From a Development standpoint, your logic is flawed. As I've said, I'm sure SD has their own milestones, but nothing about this game, major or minor, has been left completely untouched. SD's been listening, really listening to their players/customers, and trying to tap us for additional ideas. By that same token, it's the players, not the developers, who decide if a game is good or not. Since SD's sales rely, more or less, on whether or not the game is good, finding out if we think the game is ready to move forward with or not is a very smart move on their part. If a majority of us say yes, then they're doing their jobs perfectly, and now they have an indicator that the game will sell, at least to folks similar to those in the Beta. At the same time, if we say no, then SD knows that something, whatever that may be, is in need of being fixed/re-done/etc, and our responses to those changes will tell them if they're back on track or not. I seriously doubt whether or not the Beta moves forward, in the long term, is a Tester-Made decision, and that SD will keep things in check based on whatever criteria they use for this kind of thing.
IMO, SD's just got a rough skeleton of their game, and like any normal person who's looking at a skeleton, they don't really know what to do with it. They aren't sure if they should just throw a party-hat on its head, a cigar in its mouth, and hit the town, or if they should buy it a suit and some nice Italian loafers first.