Yesterday 7 October 2012, the SpaceX Falcon-9 launch vehicle sustained an explosion in one of its nine first-stage engines during launch. The remaining engines were apparently undamaged and the vehicle was able to continue on to orbit.
The Falcon-9 is designed with Kevlar shields surrounding each engine, so that in the event of an explosion, damage to neighboring engines is mitigated.
The video below shows an apparent hot spot on the engine bell, which gets brighter and brighter prior to the explosion. Afterwards, you can see portions of the damaged external fairing falling away.
I do not believe that any previous launch vehicle has ever been able to sustain an engine explosion and then carry on with the mission. The SpaceX system design is surprisingly robust.
Here are some reference photos of the engine configuration: