The front plate where the sensor is, is screwed up on my iPhone 3G. So I have it turned off because something with the front plate is messing up what light the sensor sees so it screws up the auto-brightness. I manually change the brightness between night and day.
I leave it off because the only way for the auto brightness to work is to unlock your phone and a lot of time I'm using the lock screen to reply to texts. I have a jailbroken iPhone so SBSettings allows me to change the brightness super quick without having to go into settings anyway.
To all you 'special needs' people it only checks it once. When you unlock the phone. No it doesn't take extra battery life unless you're locking and unlocking the screen every 3 seconds.
Yeah but it's more annoying than it is useful. It's not bad half the time but the other half I just get a really dark screen after bringing my phone back from standby. I have to press the shoulder button twice to get the proper brightness.
Also, I just adjust the brightness manually when in a movie theatre.
Mine's at around 45%, auto-brightness off. When I first got an iPhone I was told that having it on was a major battery drain, so I've never used it. I put it on for a few hours today after reading this thread but I found it annoying.