Amazing photo coming from a device less than half an inch thin that's also a million other things and lasts the whole day in your pocket. We really are living in the future now.
What reason is there to carry around a point & shoot now? Other than battery concerns/don't care as much if you lose it/break it/etc. For most people, like Apple said, this will be the best camera they've ever owned that is also an iPhone to boot.
Obviously you can't compare this to anything coming out of a D-SLR, but the difference between this and a regular point & shoot is negligible, especially when you consider most people will never be printing up ANY of their photos, and they'll all be uploaded to facebook in crappy resolution anyway.
Here's to the 4S! (I'm still gonna wait for the 5 though, my iPhone 4 is doing me just fine)