The good news is that once you have Find My iPhone enabled, if you go to change any setting which will disable Find My iPhone, you will be presented with a warning/confirmation alert and asked if you really want to make that change. When you first set it all up, I encourage you to
log into Find My iPhone and test it to make sure that it is working. Don't wait until you need it to test whether or not it is configured properly.
A few more suggestions to maximize your chances to recover your iPhone
Once you have all that setup, will "Find My iPhone" work? My answer is "Yes. Usually."
A story: This summer I accidentally left my iPhone in a restaurant in Framingham, Massachusetts (an area covered by AT&T's 3G service area). Fortunately I knew that it was locked (Settings > General > Passcode Lock > ON with "Require Passcode" set to "Immediately) but when I logged into www.me.com and tried to locate my iPhone, it came up as "Unavailable." I called the restaurant where I had been for lunch. The manager told me that it had been found and they had placed it in their safe. She also told me that when they find a lost cell phone, they normally try to contact the person who lost it using the address book in the phone (looking for a number for a spouse, or "mom" etc), but could not do that for me because the phone was locked, requring a 4-digit PIN.
Despite this anecdote, I strongly suggest that you always use the passcode lock,
and set it to lock immediately. Practice entering your PIN so you can do it with one hand, even without looking. If it is always locked and you do lose it, you'll know that it will be difficult for the average person to use it. Hopefully that will increase the chances that they will turn it in wherever they find it. Don't depend on Find My iPhone's ability to remotely lock or wipe your iPhone!
Even in a 3G coverage area, you may not always be able to connect to your iPhone. Not to mention that by the time you get to a computer, it may have been found -- and Find My iPhone may have already been disabled if you didn't have Passcode Lock enabled.
Remember the restraurant manager's comment about how she tried to return my iPhone but couldn't access any of the information to track me down? What if I hadn't remembered where I left it? Turns out there is something else you can do to help a Good Samaritan who wants to get your iPhone back to you. I realized what I needed was to provide emergency contact information which will appear even when the iPhone is locked. You may also have heard about the ICE (In Case of Emergency) movement, suggesting that cell phone users put a contact named "ICE" in their address books for paramedics, hospital personnel, police, etc to be able to contact someone if you are in an accident or other traumatic event. Again, this won't work if you lock your iPhone.
Turns out there is a rather easy, low-tech solution. As you can see on the image above, I went to the built-in Notes app on the iPhone, put in "If found" and "In case of emergency" contact information. (I put a few blank lines at the top.) Then I simultaneously pressed the Home button and the button on top of the iPhone to take a screenshot of that information. Next, I switched over to the iPhone "Photos" app, found the screenshot, tapped it, set it as my wallpaper, then followed the guides to move & resize it. Voilà! (Dear
Comic Sans haters: you can do this same thing with any application on the iPhone which allows you to enter enough visible text.)
As an aside:
Dear Apple: Many of us have handed down our original iPhones to our significant others. Many more have friends who have iPhones. You know what would make a great app? Find My iPhone! Let me enter my Mobile Me username and password into the app and send a message with sound while away from home. It might make the difference between finding it in the club, cab, restaurant, etc before we leave, and having to hunt for it afterward. (Also, as several people suggested in the comments, it would be good if Find My iPhone settings could be password protected even on an iPhone which does not have a passcode lock.)
Lastly, remember that if you aren't eligible for an upgrade, a new iPhone will cost around $600. Mobile Me is $100/year, and gives you a lot more than just Find My iPhone. I have been a big critic of Mobile Me in the past, but for the past several months its syncing has worked much better for me. If you do lose your iPhone and someone helps you get it back? Be sure to give them a reward of some kind. Remember, they just saved you $600.