If functionality is the most critical factor for you when buying a smartwatch, the original Pebble is still a better deal at $150. It will do the same things as the Steel, which means there is very little incentive to paying an extra $100 for the nicer watch if that's your motive. Additionally, the first Pebble is also more colorful and customizable, so some might still prefer it over the Steel.
On the other hand, the Steel serves a wide-open market segment: people who want a watch that looks good. Indeed, the Steel blends functionality with an elegant and durable design, and it does a fantastic job at it. You'll get a long-lasting battery (by smartwatch standards, at least), a tough stainless steel body and a solid ecosystem that will continue to grow and get better. It seems like an ideal compromise for those who want a flashy watch that does more than just tell time, and even though it's significantly more expensive than its first-gen counterpart, it's still much cheaper than some of the Rolex-style timepieces you can buy.
Simply put, the Steel isn't going to persuade many people to swap out their perfectly functional Hamilton, Movado or Citizen, but if you're in the market for a replacement and want a smartwatch, this is your best option. What's most important, though, is what the Steel represents: a realization that if smartwatches are going to become mainstream, they'll need to appeal to people who prefer to adorn their wrists with jewelry. At the very least, the Steel is a significant step in the right direction.