I upgraded, and I don't regret it in the least. The iPad 2 has way more power, it's lighter, thinner, and the cameras are a nice addition. I've found myself doing far more with the iPad 2 than with my former iPad 1.
That being said, you can definitely get by with an iPad 1, and it's far from an outdated or bad device.
Within a few months there will likely be some iPad 2 specific apps (just as there are now many iPhone 4/iPod touch 4G apps), but I wouldn't worry much about it. The best games still work, the productivity apps still work, etc. You're set.
I'd go with the cheapest on the 1G iPad though. There are $350 16GB refurbs in the Apple Online Store, and many stores still have stock left for similar prices. I wouldn't drop $600+on a past gen device.