It's not what it does, it's how you use it that counts. We all know about the app store and the new iPhone 3G, so I'll skip past what everyone else has already said about the device and describe how I'm using the original iPhone with the 2.0 software update.

Killer App? The App store. The applications available for the device from day 1 have been amazing. Sure, you can put an image of a cow on your phone that moos every once in awhile and fill your phone up with iBeer, but there are a few standout apps I feel are worth mentioning.

1. Pandora - The online music service, Pandora, is great in its own right. You tell it a band you like, it plays music that's similar (and works really well). GAME CHANGING on the iPhone. I had it plugged into my stereo the other day listening to my "M83" radio station. Not thinking anything of it, I unplugged it and grabbed my headphones and headed out on a walk with my dog. I realized 10 minutes in, that it was still working! Without a hiccup it switched from wifi to edge, streaming music the whole way. One song in particular caught my ear, I bookmarked it, and bought it from the iTunes store (this part had to wait till I was in WiFi range again). You now have a limitless supply of music available almost anywhere with the device, and a way to discover to tunes.
2. Yellow Pages - What a great idea. Take something we all know and *used to* use, add the location awareness, and you now have a really useful search tool. I don't have GPS like the 3G iPhone, but the location feature works well enough where I typed restaurant and it gave me a result that was literally 500 feet away as the first hit. Google maps is great, but for this kind of thing it does a much better job.
3. Midomi - Ever had a song stuck in your head and not know what it is? Never again. This app allows you to sing a portion of a song into your phone and it pairs up your attempt with real songs the best it can, you can preview it there, if there are youtube videos it pulls those up with thumbnails, and of course, you can buy from iTunes right there. Best feature though? listening to other peoples attempts :)
4. GAMES. Super Monkeyball? Yes. It's incredible on the iPhone. It's a real 3D video game on your phone and works very naturally by tilting the phone around to move the monkey through the maze. Bejeweled? Even better now that you can touch the gems. There are so many more I want to try, but I have to hold back as most of the good ones cost $10. Keep an eye on your battery with these though, it'll eat it up real fast.
5. Twitterific - if you like twitter, this app works great on the iPhone, it's location aware, you can take pictures and upload/link directly to a post, it's great.
6. Facebook - a little buggy, no doubt the next rev will fix the weird issues with messages.

Those are just a few to name. We've had portable computers for years, but the form factor and location awareness make this the device to have around for so many reasons.