I did not own a 1st generation iPhone but I recently purchased an iPhone 3G. Personally, I find the speakerphone volume performance to be well below what I had expected. If I am in a completely quiet room the audio level is somewhat acceptable, but with any kind of background noise (even a simple fan) and the sound is too low to be useful.
I am not sure what is causing this but it is definitely not the speakers because when I use the iPod feature to listen to music without any headphones attached the speaker performance is much different than when used for a phone call. In fact, when used in iPod mode with the volume set to maximum I can easily hear the music over a very loud television and other background noise (attempting the same in speakerphone mode is utterly useless)
If the speakerphone worked as well I would be a happy camper. Similarly, I find that the phone handset volume is also too low to be really useful. Obviously, the sound problems are related to the internal handling of phone call audio.
Hopefully, it is correctable via a firmware update and not a hardware defect.