That's the most common question I've been asked since getting an iPhone last month. Sure, it's a nifty conversation piece and overall I'm pleased with it -- especially since it replaces my (go ahead and laugh) 2nd gen iPod and Razr. There are a lot of features I love, like the Maps driving feature to calculate distance and time based on real time traffic conditions (red = heavy congestion, yellow = moderate, green = clear), Mail, photos, and of course the iPod, but I have my own list of improvements for the rumored Fall firmware update.
1. iPod: The album cover art is frustrating at times. I have tracks from the same album whose art isn't recognized because a letter may not have been capitalized when typed in manually. That's weak, especially seeing tons of default "missing" album artwork or duplicates. You'd think with CDDB access that it would reconcile duplicates and correct minor errors.
2. Multitasking: If the device can't handle playing music while I submit forms via Safari then we have a problem. My songs will typically stop playing because, and this is speculative, the memory is overloaded. Weak. I've also had instances where the Maps feature returns to the main menu for no apparent reason, then upon retrying the same function doesn't recognize the address I just typed in.
3. GPS: Other have asked for this but to me it's a game changer. I've literally had to pull over or quickly scan street addresses and signs and type while driving (hey Rog!) to figure out how to get back on track. If there's a feature that can pull real-time traffic for Maps, and our cell phones are using satellites, it seems pretty logical that GPS would be included in firmware v2.
There are a few other features I've seen people requesting that would be great too: camera zoom, cut and paste, wireless connectivity to your laptop, Flash support, etc., but I can live without most of those things (case in point, I have a Flash blocker running on Firefox 24/7).
Some people are pulling the Nelson "Ha-ha!" at iPhone owners, but the reality is that even with these limitations it's still a superior product to anything on the market.
Side note: For $600 they should really include the foam earbud covers. That's just cheap.