First and Last name for everyone except the immediate family.
Weird thing though, when I receive an email from my dad, who is labeled "Dad," the iPhone, or maybe MobileMe, will realize a last name is missing from the contact. It will add "Hollberg" to the name. I eventually got sick of changing it back to just Dad so now it reads "Dad Hollberg" which is weird to see. Weird thing is that it doesn't do this for any of the other immediate family, but the rest don't use MobileMe. If you know a way to make it stop doing this that would be great.