The fabled "Tree of life" - all life forms arranged in order of descent from a hypothetical common ancestor - may not be a useful way to understand the history of prokaryotes (simple life forms, including Archaea and Monera, believed to be among the earliest), say James O. McInerney, James A. Cotton and Davide Pisani in The prokaryotic tree of life: past, present…and future? (Trends in Ecology & Evolution, Volume 23, Issue 5, May 2008, Pages 276-281).

The problem is that horizontal gene transfer ("gene swapping") is now accepted as a "significant influence" on gene evolution. Gene similarities could just as easily be accounted for by being nearby as by being related, so that "Gene trees can conflict greatly, and strains of the same species can differ enormously in genome content."

Why is this a problem? Assume that you swapped genes regularly with your neighbours simply because you and they were often out in the back yard at the same time, and the wind blew genes around. DNA testing, which is usually done to demonstrate ancestry, might show strong similarities betsween you and your neighbours. But the explanation is not that you  share a recent common ancestor, but that you have adjoining back yards.

Another problem emerges from this one: What is a "species" of prokaryote? For a while, microbiologists have tried isolating "core genes" that defne a species, but the number that are truly "core" genes seems to be dropping.

Biologist Ernst Mayr defined species as “groups of interbreeding natural populations that are reproductively isolated from other such groups” [63]. But McInerney et al. point out,

Mayr was a zoologist and his biological species concept is one that essentially fits animals. Microbiologists might surely modify Mayr's definition to accommodate some level of HGT. However, when HGT seems to be able to move virtually every gene in the genome [32], the meaning of a tree derived from a tiny minority of putatively vertically inherited core genes become fuzzy [58]

In some respects, the concept of "species" has always been a bit fuzzy around the edges, and maybe it just doesn't work for prokaryotes at all. Here's the team's abstract and citation:

No accepted phylogenetic scheme for prokaryotes emerged until the late 1970s. Prior to that, it was assumed that there was a phylogenetic tree uniting all prokaryotes, but no suitable data were available for its construction. For 20 years, through the 1980s and 1990s, rRNA phylogenies were the gold standard. However, beginning in the last decade, findings from genomic data have challenged this new consensus. Gene trees can conflict greatly, and strains of the same species can differ enormously in genome content. Horizontal gene transfer is now known to be a significant influence on genome evolution. The next decade is likely to resolve whether or not we retain the centuries-old metaphor of the tree for all of life.

The prokaryotic tree of life: past, present . . . and future? James O. McInerney, James A. Cotton and Davide Pisani Trends in Ecology & Evolution, 23(5), May 2008, Pages 276-281.

See also: Prokaryotes and the Tree of Life by David Tyler:

Unfortunately, there are only two options being considered by most of the researchers. The first is that further work will eventually find a way around these problems and a robust Tree of Life for prokaryotes will emerge. The second is the genetic annealing model proposed by Carl Woese, with HGT as initially dominant in single-celled communities - replacing the tree metaphor with a network. But there is a third option: that we are discovering evidences for the polyphyletic origin of prokaryotes. What we would like is to have this option on the table for academic discussion. The presumption that everything has evolved from an original self-replicating cell needs to be tested, not accepted as the unchallenged default.

Obviously, common ancestry is preferred for explaining similarities in life forms, but perhaps gene-swappers don't do things that way.