Video camera - hell yes! It's been less than a year since the G1 release, and cupcake has video recording on it (iPhone 3.0 - still don't know if it has video recording). The quality isn't half bad either. Best part is, they've made it really easy to take a video, and instantly share it. You can either email it through gmail, the mail application, send it via mms, or upload it to YouTube.
Virtual keyboard - awesome! This really should have been in there a long time ago, but at least it's here now. I actually prefer the Android virtual keyboard to the iPhone's because it vibrates very subtly when you tap keys. I also prefer the suggestive text to the iPhone's auto correct. Another win for Android here.
Automatic screen orientation switching. Again, this probably should have been in to begin with. It works great, just as you'd expect. I never really liked this feature on the iPhone though - it never changes when I want it to, but quite often changes when I don't want it to. From my brief toying around with the feature, the Android does it slightly better, but still not good enough for me to have it turned on.
They've also made a few changes to the default UI for Android. There's some texturing going on now. Looks nicer. Nothing major though.
From a developer's perspective, this update introduces several new features to the SDK. I personally haven't tried and tested any of them yet, but will do so in the near future. When I get on it, I'll be sure to write about it.
If you're a 1.1 or earlier developer, you may be made a little unhappy by this update. They've changed the minimum size for some UI elements (Buttons for instance). So if you were relying on "wrap_content" to make your UI look just right, you may have to redo it. Not really sure why they did that.
All in all, I think this is a pretty phenomenal update. If you haven't already gotten it, get it now and you won't regret it.
-Sir Lapog Kahn.