I've been extremely happy with mine. No, it's not perfect, but what is?
The three things I see wrong with mine (and one is probably a got a defective one issue):
1. The home button can be flakey (I hear though that people have had luck with Apple just giving them a refurb if they bring their iphone in for this).
2. Could have a faster processor (Only notice this on some programs so this more could be due to bad programming. Particularly one racing game). Still, this thing blows my 3G out of the water for speed. And honestly, with technology, you always could use a faster processor

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3. Needs more storage. That was my one disappointment with the iphone announcement honestly. Once again, this is something you expect that you'll eventually want more as the tech gets old.
So two of my problems are something that will eventually you'll want more of as the tech gets old and one is something that is defective on my particular phone (That I've chosen to just deal with).
What I love?
1) Speed (yes, I said it could use a faster processor, on the other hand it's definitely a huge improvement on the 3G, I'd have a hard time going back cause the 3G would feel like a slug now)
2) GPS (they improved the GPS which is something I wanted them to do since the 3G. It gets a lock on my location a lot faster and it's a lot more accurate. It's been a perfectly great GPS now that I loaded Navigon on it. I'm not sure my 3G would be great for turn by turn GPS cause it lost location so much and a lot of times was not that accurate).
3) Camera. I love the camera. I don't need it to be improved. If it is, that's nice, but it's definitely good enough now (3G's camera sucked). I especially love how fast the shutter speed is after you press the click button (press click and it clicks, unlike the 3G that took a second, or the EVO I tried that was really sluggish at shutter speed).
4). Screen. I don't think this is my favorite part of the phone unlike everyone else. I love the screen, it's great, it's great for reading. But unlike some people here the screen is neither a dealbreaker (not having it) or something I'd buy the phone solely for. It's a nice extra.
5) The shape is much better for using it as a computer away from computer and gaming device. I agree as a phone the 3G shape was nicer as it fit in your hand. But, seeing as I hate phones anyways and pretty much the fact that it replaces my phone so I don't have to carry a phone too I don't think for me the phone aspect is that important.
6) But, I don't see people's point about it having horrible connection. Let me actually go fishing with it and get back to you on that (my old iphone was not great at getting cellphone connection while fishing, or at least my dumbphones were superior in that aspect. It was good enough, but I do know get too much in the middle of Puget Sound and I might lose connection to 3G). Honestly, connection while fishing was kind of my measuring stick on how well the phone kept connection (it's where I'd take note so that's how I judge each phone as I know where each phone tended to lose connection).
7) Battery is definitely better. The only time I really get close to using it all up is when gaming. And I just bought a portable battery charger that fits in my purse and will charge my phone up 2 1/2 times. Which means I could game all day and know I'll have power all day *grin* (basically bought it cause I do think iphone as a gaming device fails in the aspect that you do worry about leaving some battery life left, now I don't have to worry). It gets about 4-5 hours of battery life when mostly gaming on it (and games eat battery). Of course this varies by game (some games are inexplicably battery hogs, others are surprisingly not. Final Fantasy II for example is pretty good. Some little puzzle game I have that doesn't even have animations eats battery like crazy. My racing games eat battery... but you know what, I expect that out of a game like that).
8). Great book reader

(probably due to screen) Yeah, small screen but I can hold a book in one hand now, change pages with one hand, and do other things at the same time. I personally prefer it to even an iPad for this reason. Plus carry any books I want to read in my purse.
9) Touch screen keyboard. Ok, yeah I originally wanted a physical keyboard, but I find usually when they are implemented the buttons are so tiny you can barely hit them (some even made the buttons tiny and *recessed*! Even my small hands have a hard time hitting them. Making it hard to type properly on them. Apple did a good job implementing the touch screen keyboard that for a device that small I find that implimentation is better than the physical ones for typing. Especially since as you have the phone for longer, it starts learning your typing and what you tend to typo, and is amazingly good at predicting what you were trying to type even if you really mess up the word.