(updated for 2013)
Collisions and radiation generally compete to establish the relative populations of different energy states. Randomized collisional processes push the distribution of energy states to the Boltzmann distribution, . When collisions dominate over competing processes and establish the Boltzmann distribution, we say the ISM is in Thermodynamic Equilibrium.
Often this only holds locally, hence the term Local Thermodynamic Equilibrium or LTE. For example, the fact that we can observe stars implies that energy (via photons) is escaping the system. While this cannot be considered a state of global thermodynamic equilibrium, localized regions in stellar interiors are in near-equilibrium with their surroundings.
But the ISM is not like stars. In stars, most emission, absorption, scattering, and collision processes occur on timescales very short compared with dynamical or evolutionary timescales. Due to the low density of the ISM, interactions are much more rare. This makes it difficult to establish equilibrium. Furthermore, many additional processes disrupt equilibrium (such as energy input from hot stars, cosmic rays, X-ray background, shocks).
As a consequence, in the ISM the level populations in atoms and molecules are not always in their equilibrium distribution. Because of the low density, most photons are created from (rare) collisional processes (except in locations like HII regions where ionization and recombination become dominant).