My wife and I have the 3G in contract but we are paying the premium to upgrade (minus resale value of our old phones on ebay). Why?
For me, it's SPEEEEEEED over all else. I use my iPhone heavily for fun and work. For work, I sync with the company exchange server, and heavily use calendar, contacts and email. I use it on business trips to navigate, find places to eat, etc. I have a bunch of productivity apps. It has all worked great the last year, but I've always longed for better performance.
My peers have Blackberries, and while the iPhone is superior in almost every measure IMO, I've always envied how fast they can switch between calendar, contacts, phone, etc. It's almost instant. But the iPhone lags, especially considering how I've loaded it up with emails and such. They are just little lags, but they add up and they aggravate me. There's a delay to go from contacts to calendar. Another delay to open a new calendar item, then I tap on the text fields and have to wait even longer before it allows me to enter something.
The iPhone doesn't allow multitasking, which is okay in principle, but faster transition between apps (to make it seem like it is multitasking) would go a long way to remedying this.
Well, the 3GS appears to address all of this beautifully. If the Apple intro video genuinely represents how fast the UI will be, I'm most definitely going to be happy with the new phone. It will pay benefits every day that I use it. The performance will match the beauty of the UI, and the phone will finally feel seamless.
There are other reasons we want to upgrade, in particular we have a 10 month old and it will be nice to have video and a decent camera in our pocket at all times (with, I'm hoping, faster shutter response to go with the image quality).
I can't wait to get my hands on it!