The Obon Matsuri is probably most associated to dancing, taiko drumming, eating, and drinking at outdoor communal gatherings around this time of year in celebration of the return of ancestral spirits. However, there's a more solemn side when people float laterns in waterways to help guide the spirits back to the other world.
The video on the following link shows the Obon Lantern ceremony in Kyoto.
Yes, our area has stopped sending off the lanterns for fear of pollution.
I've heard some make sure that people use biodegradable materials.
The one place I know for sure of not stopping the practice is Hiroshima City, which has been praying for the souls lost in the A-bomb every August 6 since 1945. I've seen the floating lanterns there a number of times, and the river(s) in the city become beautiful. I suspect the same is done in Nagasaki City on Aug 9.
Edit: Nagashima-san has already uploaded the Nagasaki festival.
This is the tourou-nagashi in Hiroshima (2008)
The one place I know for sure of not stopping the practice is Hiroshima City, which has been praying for the souls lost in the A-bomb every August 6 since 1945.