Although 3gs is a bit faster in all aspects (especially with applications), the big difference is the gps. The 3gs will zero in precisely where you are and give you an address and show you the direction you are going. It also gives lat and long. Google maps on the 3gs is just amazing. And street view is unbelievably fast. To me the gps aspect alone is worth the price difference. There are lots of other little things such as the voice control to choose music or make calls that the 3gs has, but the GPS is the big change IMO. If gps is not a big deal, then it is not worth the extra $ IMO.
Regarding the comments on battery life, 3g internet sucks the battery. Put it on 2g to save the battery. Wifi also uses battery but when actually on internet 3g will use the battery about twice as fast as wifi.
I use my original iphone (2g) all the time and only charge it about once a week. It is 2 years old and battery is comparable to when it was new. The secret is to not leave it plugged in all the time. My wife's 3gs uses the battery fast if she is using 3g internet.
The best way to save battery is to jailbreak and install the application "sbsettings". That lets you toggle wifi, 3g, 2g on and off with one touch. Very slick. High brightness and using the speaker to play music also suck the battery. Also note that if you jailbreak you can install "pdanet", which lets your laptop use the iphone as a modem for the internet (you can choose communication method between laptop and phone, wifi or usb).
Regarding memory, expect 600mb per movie and you probably know already that you can pack tons of mp3 songs, audiobooks, and podcasts on there with no trouble.
check out the dynolicious, gas bag, flixster (movies), and localpicks apps. those are all free except dynolicious (which is a gtach for your car). aol radio and similar free apps gives you free unlimited worldwide music that beats the heck out of satellite radio IMO