Talk about a silver lining—in this case, presumably a hand-stitched one. Friends of Martha Stewart's say that since her June indictment on five charges stemming from her $228,000 sale of ImClone Systems stock, the household icon is turning into a kinder, gentler Martha. "Her old self wasn't so nice," admits a friend in East Hampton, N.Y, the elite enclave where Stewart maintains a home. "She's gotten much better. She's more affable, smiley."

After a tense year spent focused on business while awaiting civil and criminal charges, Stewart, 62, is throwing herself back into her life. Once again she's attending parties, traveling in Italy and enjoying business dinners with the likes of investment guru Warren Buffett. When she returned to her hometown of Nutley, N.J., last month to be inducted into the local hall of fame, she even praised the pesto. "She seems in very good spirits," says art dealer Richard Feigen, who's known Stewart for 15 years. "She doesn't seem preoccupied anymore."

One definite mood enhancer was a Sept. 30 civil ruling by U.S. district judge John Sprizzo that greenlights Stewart's lawyers to interview 15 witnesses who will also testify at her criminal trial, expected to begin in January. Adding insult to the prosecution's injury, Sprizzo said, "This is not the strongest obstruction of justice case I have ever seen. This is not John Gotti." A good thing, certainly, but she still faces the possibility of jail time. In an interview with Barbara Walters to be aired on ABC in November, Stewart admits, "Of course I'm scared," though she adds, "I don't think I will be going to prison."

Added to her legal woes are the financial blows the company she founded has had to weather, including shrinking circulation of her magazine Martha Stewart Living (see box). And in most major markets, her syndicated TV show has been bumped from the prime 9 a.m. slot to the insomniacs-only 2 a.m. berth. Still, says her Hampton friend, "She looks better. I think she's gotten adjusted to her difficulties."

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