Basically, externally.. there is no difference from the 3G. In fact, it is identical and you probably cannot tell them apart if they were off. (except the one I tested said 32GB in the back)
I tested a iPhone 3GS for a while and tried out the different apps for it. When the phone is turned on, everything is noticably much faster, thanks to the beefed up CPU, RAM and extra storage capacity. OS 3.0 feels and looks absolutely fabulous as well.
From previous versions of the system software featuring highly sought after features like cut, copy, and paste, stereo Bluetooth, MMS, tethering, video recording, landscape keyboard options for more applications, and an iPhone version of Spotlight.
In my opinion, iPhone 3GS and OS 3.0 tweak the details in just the right places, and not really giving you a revolutionary new phone.
On loading the apps, you can notice that it is significantly faster than the 3G iPhone thanks to the increased in RAM and processor speed. Tried some games, and results were much better. 3GS does have better loading time and less lag.
After using it for a while, I noticed that the finger prints were very easily wiped off, so I took out my already dead and obsolete iPhone 3G and noticed that the coating on the screen has improved.
Tested the camera, and the 3MP camera, with "autofocus" still sucks and takes too much time before the shot is done. It is nothing compared to the other camera phone in the market, and pretty much underpar with what's currently offered by other phone manufacturers.
I tried out the compass, and it is very pretty and does come in useful when you use it with google maps. Using the other apps like safari and some other built in games, the iPhone seemed pretty nifty.
So after 1 FULL CHARGE of the battery, did they improve on the battery at all? NO!! The battery life is still miserable. With the WiFi on, 3G network and listening to songs on my headphones, I barely got to test it for 3 hours before the battery was drained. Then when I picked it up, the iPhone was incredibly hot! I could have sworn that it can fry eggs or boil water. Don't believe there is a difference in the battery life between the 3G and 3GS and heat is definitely an issue.
So as a whole... Thumbs up for OS 3.0 but still the built in battery sucks, not really a business phone as when your battery runs out, you need to plug in to charge, instead of just switching batteries.
If you have an iPhone, just consider the price (which is pretty low now) and whether you need another one. All your accessories would still work, and it would be great if your iPhone 3G was broken, but otherwise, get a WM7 phone when it is out.