On my Zune 30:
Firmware pros:
I agree that the sq seems a bit better in general, more open. I'm not sure if the bass is diminished.
The volume on my player is definitely louder.
The battery lasts longer between charges.
The GUI is faster.
Firmware cons:
Can't control the font size.
In album view, you have to highlight the album to see the artist's name, otherwise you just see the album title.
Removed support for some video encoders (not formats). The videos I encoded to .wmv (Zune specs) using DVD catalyst no longer work, although they worked perfectly with the former firmware. Some people have had the same problem with videos encoded using other third party programs. However letting the Zune software do the conversion takes hours.
Software pros:
Faster!
Support for podcasts.
Software cons:
Metadata disaster - many people are finding that the database that the software builds from tag info is mixing up albums and artists and album art. In most cases only the database is wrong, not the actual tags. In some cases the software is altering the tags themselves (even without "automatically update" ticked). I had a few albums messed up, some had hundreds.
No support for changing video metadata.
Audio tag editing is unreliable and limited. Currently, the changes we make often don't "stick".
There is no online "update album art" feature.
The navigation is not intuitive.
MS removed auto-playlists.
MS replaced the rating system with the heart/broken heart (meaning like/don't like) system. Why would anyone put a song on their unit that they didn't like?
Drag and drop doesn't work well.
For some people, the software is unable to find all of their music.
For some people, the software creates multiple copies of tunes in their library.
There seems to be something broken with the way the software deletes music.
The podcast subcription settings allow the user to specify how many podcasts to keep, but it never deletes listened to podcasts from my Zune. I have to do it manually.
Overall, if someone hasn't upgraded I would say wait until they next release. There is an unofficial downgrade path, but I decided to wait it out.