As most reviews have already said, this phone is amazing. The hype and anticipate was well worth it for the original iphone and this goes one better with a sleeker black design and quicker processing.
I dont know how i ever lived without my iphone. There are so many apps for just about everything. I have everything from games to currency convertors to online shopping apps. The big companies have started to get on board with apps too in the last year or so, you'll now find Tesco, Ocado, Amazon, NatWest, etc all launching iphone apps.
In terms of functionality the iphone can do just about anything, with Apple's software upgrade last year came much needed features such as picture messaging (a bit of an oversight on thier part).
In terms of reliability, i've never had an issue with mine. Despite being very protective of it i have dropped it several times and its still going strong!
It has to be the easiest phone to use i have ever had, so intuitive which is to be expected from Apple.
As for the ipod element...i actually use this the least but its great to have one device in your pocket that can do all sorts.
I would never go back to an ordinary phone.

The only downsides for me are the inability of the iphone to run multiple apps at the same time, but there is a future software release for this. The price is also a bit hefty in terms of monthly contract. I would definately recommend the 16GB as, for me, 8GB would never be enough!