What thermodynamics says is that we can only get useful work
out of a physical system if we have a difference in energy
levels.  For example, if we have a high potential in one place
and a low potential in another we can get useful work out of
the current flow.  Thermo also says we will lose some of the
available energy along the way; increased entropy is a way
of saying that we have lost usable energy.

Now the Earth is constantly radiating energy into empty space
which has a very low energy level.  It is intercepting energy
from the Sun which has a very high energy level.  This flow of
energy through the Earth is available for useful work;
biological life is a small ripple in this energy flow.

In a closed system where there is nothing coming in or going out
everything goes to equilibrium, i.e. the energy level everywhere 
is the same; this is know as heat death.  In an open system where
there is energy constantly flowing through system you can have
local complex perturbations that are not in equilibrium.  Life
is a local complex perturbation.

The important thing to understand from the viewpoint of
thermodynamics is that evolution is irrelevant to the thermodynamics
of life.  Each cell is a little island of reduced entropy.  If we
are calculating  the reduction in entropy due to life, it doesn't
matter how the cells are arranged; all that matters is the total
volume of cells.  It is also important to realize that life is
really a very small perturbation in the over all energy flow.

-- 
Richard Harter