I purchased an iPhone 3GS last week.
The first thing about upgrading your phone is that it is expensive... and we here in North America have been so conditioned to getting discounts on the cost of the phone that we choke at the full price of a smartphone. At Telus, a 16GB iPhone 3GS is $700 and I believe the 32GB version is over $800.
Cost aside, I have to say that this in an impressive device. Not perfect by all means but very well thought out.
I used to have an HTC Touch Diamond... another device that was big on touch screen navigation and this phone really blows that phone away. I have big fingers and yet I don't really have any issues typing of navigating on the iPhone. Of course it helps that I can turn it sideways and access a larger typing area. Moving from Twitter (via Tweetdeck) to the web is fast and seamless.
The ability download lots of apps is also pretty nifty however I'd say most of the apps I have downloaded so far just make specific tasks faster... like finding out the weather forecast (WeatherEye) or nearest gas station (MyNearest). I am also finding Facebook really convenient and of course talking and texting are a breeze.
I really don't think these phones are for everyone. Thinking about it last night, you need to be a really connected individual to get the most out of an iPhone. You need to have lots of contacts that you talk to often. You need to be out and about and need to remain connected to information such Podcasts or RSS feeds. If you are the type of person who goes to the office and home each day, then an iPhone is probably going to be too much for you.
I have a love/hate relationship with Apple and I have to say that I love this phone. But more than that, I live what this phone represents to mobile handset designers: something to surpass. As I mentioned, this phone isn't perfect but I think that representing something to shoot for will ultimately make the experience you want to have while on-the-go closer to reality and for that I applaud Apple 100%.