Con:
Phone part of it is mediocre. This seems to be AT&T’s fault, because complaints seem to cluster around neighborhood. AT&T contract term/rates are onerous. At some point, I will be thrilled to get rid of AT&T.
You need iTunes, and an iTunes Store account, if only for OS updating. Those who don’t like iTunes will have a much rougher time synching music/video content. Smudges. A lot of smudges. And of course, an industry has sprung up to make accessories for the gadget. So far, I’ve paid for a case, replacement headphones, additional chargers and an FM transmitter

Pro:
Yes, there’s an app for that. Customizes the iPhone to a very large extent to be a really great PDA — I especially find the apps that sync or share info with “desktop” apps are terrific. I couldn’t live without Mint(.com), JPMorganChase mobile banking; I also like Remember the Milk, and the way that the iPhone syncs with my Google Calendar and Google contacts (really helpful when I am out and about with people). I hear excellent things about Evernote. I believe all of the above are cross-platform, but I own Macs.

Web surfing is surprisingly good, as long as you have WiFi or 3G. I commute by train, where there are some stretches where it either drops to Edge or loses signal altogether (Again, I guess it’s an AT&T thing), but I surf for the better part of an hour.

Audio/video — well, it’s an iPod. I don’t see the appeal of watching video on the iPod screen, but it is decent quality.

Casual games — I only have Bejeweled, but am considering some others.