It was confirmed today by Matt Cutts, that Google does not penalize websites for invalid or broken HTML. Matt says while there are plenty of good reasons to use valid HTML, there are too many sites with broken HTML. He goes on to say that although Google would like to see all sites with perfect code, they realize that it isn’t reality. If Google were to penalize sites that have invalid HTML, a lot of good sites with good content would lose its rankings, which would in turn, lower the overall quality of the search results.
Thanks for the answer, Matt! Great question as well.