I updated my iPhone 3G to the new iOS 4.0 as soon as it became available this morning, so was able to avoid the four-hour download times reported by CNET's Josh Lowensohn. It's definitely a worthwhile update--the improvements to e-mail alone are worth the two hours it took me to download and install the package. But it doesn't do much new for music playback.
I've noticed two minor improvements. First, it's now possible to create a playlist directly on the phone; before, you had to create playlists in iTunes on your computer, then sync those playlists to the phone. I can't imagine building a lot of new playlists from scratch while on the road, but this feature does provide a rough equivalent to queuing--you can edit playlists in mid-playback to add a particular song next. This is a welcome addition, but it's still a lot clunkier than the "Add to now playing" option that's available next to every song in my Zune HD library.
The update also changes how albums appear in the library. Before, it simply listed every song in a boring white list. Now, album art appears at the top of the list with some information like release date and total playing time.
That's about it for this go-around. There's still no on-demand streaming service associated with iTunes, which means you'll have to rely on third-party apps if you want streaming music on demand--I've been enjoying Thumbplay's service ($9.99 a month), but you could also use Rhapsody or Spotify (if you live in Europe), and Mog and Rdio are coming soon. Or, if you want to back your entire iTunes library up to the cloud, then access it from your phone, MP3Tunes and the companion Airband app work for me.
One other thing to watch out for: on my 3G, the update performed a clean wipe of my phone, restoring it to its original "factory settings," then re-synced my contacts, apps, and finally my music library. If you've got a big music library, this could add a few minutes to your total installation time.