The good: Faster iPhone with longer battery life, better screen, better camera, thinner profile at the same price as the iPhone 3GS. New OS has multitasking, native viewing of pdfs, video capabilities, free upgrade for v. 3 users.
The bad: Changing the name of iPhone OS to iOS - WTF? Way to sow confusion, but then again the same OS is going to be used for iPads and iPod touches. Is Apple going to change the name of the iTunes store to the iStore b/c it sells more than music now?
The ugly: iAds. I can't for the life of me understand why Apple presents this as a feature to users. Sure, if you want to put them into free apps, fine. But please keep ads OUT of paid apps and elements of the OS itself. Don't waste my screen space on iAds when I'm looking at my address book, browsing in Safari, or using iBooks, for example.
The fluff: The gyroscope isn't that useful, except for games. Video calls really aren't necessary when you can only do them via WiFi. The inclusion of Bing as a search option is pretty much useless.