Sure, Casey has his reasons not to upgrade, but I'm all over the latest/greatest. To help out, Apple has posted a great article to their Knowledge Base (KB) that explains the steps necessary to properly move all your data over from your original iPhone (2G) to a hawt new iPhone 3G. The summary reads:
This article explains how to replace an original iPhone with an iPhone 3G using the same carrier. If you follow these steps to backup your original iPhone first, and then restore the backup to your iPhone 3G, your saved SMS messages, email accounts, photos, notes, and other personal settings will be present on your iPhone 3G.
It also covers erasing your old iPhone if you intend to hand it down. (Though, since Secure Erase hasn't been made available yet, you might want to write over everything with different sets of music data (large playlists) several times if you're paranoid about privacy and security).