Depends on what you use it for, i think the contract is best for the first 18months then swapping to payg. It really depends on whether you have the money to shell out for the phone in one go or not.
The features are awesome, the net browsing is very very fast.
I can connect it up to our corporate exchange server so i can get push email on my work email.
It acts a great music player and the 16gb one can easily hold several movies.
The itunes app store is probably the best bit, you can get lots of free, or nearly free software from independant developers.
For example i\'ve added a RSS feed app, google earth, a dictaphone recorder, and a few games to it.
Downside, battery life and price i guess.