I wandered down to the Mac store on July 4 and played with the iPhone for 15-20 minutes. From my brief fling, here is my overview:
The Good - This is just one awesome portable web browser. Seeing the whole page then zooming in and out with the "pinching" motion is just genius on a portable device like this. Of course the iTunes music and movie modes are also good, and you would expect that.
The Bad - The touch screen keypad is just horrible. Even with its "predictive" software, most of what I typed ended up as garbage. Typing emails was a major effort, and was about the same speed as someone just learning to hunt and peck. Typing in web pages longer then three letters was a major effort; typing in "www.windowmanger.blogspot.com" took forever, even with the ".com" key they thoughtfully provide. They say that this gets better "after a few days", but I seriously doubt it in my case.
My overall recommendation is that if your primary use of a smart phone is web browsing, then run out and buy this thing (if you have a spare $500 lying around). If your primary use is email - and you are used to a Crackberry or Blackjack - then avoid.
The ultimate phone will be when either Apple or an enterprising rip-off marries the touch screen web functionality to a real keyboard.