This has been an eagerly-awaited app (the iPad version was available at launch), and I downloaded it this morning to give it a test. It works fine on both 3G and WiFi, and the 3G feature is a bit of a surprise given AT&T's position of holding back on some streaming apps. Slingbox, for example, found dealing with AT&T tough sledding, but the company finally did get the app approved for 3G.
My TUAW colleague Richard Gaywood points out that with many AT&T users no longer on unlimited data plans, the company may see apps like this as a profit center. The new Hulu Plus app also works over 3G.
The new iPhone version has excellent image quality, supports fast forwarding and rewinding of the video stream, and like other incarnations of Netflix, allows you to pick up where you left off if you stop a movie and restart it. As Netflix members will appreciate, you can pause a movie you are watching on a Netflix device at home, and start the movie on the iPhone app and it will resume at the same place.