So I upgraded. It was a no-brainer really once I went to the Apple store and got my hands on one.
The display is just wonderful, and that was the killer feature for me. It's not just the photo stuff (which is cool and just works), but the display, anti-aliased text and use of colour is beautiful. It's very sharp and vibrant.
iTunes got a minor upgrade to support the photo resizing and upload, but is obviously v1.0. It also uploads album art which is viewable in the 'now playing' section on the iPod. I'd still much rather use Windows Media Player. Speaking of which, why can't Apple just support WMA on the iPod. They support it (for import) in iTunes.
A lot of people are saying "Why bother? Colour and photos isn't worth it." Just go play with it.
Nice device. Steep price.