Sound quality is an issue - you really need a good microphone on both ends (the iSight has a very good microphone, but I've only connected with four iSight users and a dozen people who mostly use the built-in microphone on their laptop or desktop)
Combining this with an instant messenger tool (iChat) is clearly the right thing to do. Augmenting the chat with text and still photos works very well.
The barrier for overseas calls quickly goes away. I have made over five hours of calls to Europe and Australia in the past week - all of them with quality equal to or better than the normal international phone calls I've made.
Improving the audio codec would make the experience much better - folklore is that the next release of the software will offer wider bandwidth audio codecs (certainly 7KHz and possibly more). At that point this will sound much better than the normal phone.
iChat AV needs more adjustable parameters for the camera to deal with interesting lighting conditions. That said, the camera is better than any webcam I've seen.
Simplicity of operation is impressive - it is better than any computer based VoIP or video chat applications I've seen (and I've seen over a dozen).
There is a list of things I would like to see implemented. More on that later - probably after the next beta release.