Personally, I think system-wide dictation integration is the best thing to happen to the iPhone since copy and paste. I use it every day, many times a day. It is so much easier and more efficient than tapping on a tiny soft keyboard (as much of an advance as that was when it came out, it's now been relegated to backup text entry method).
I think it's good/promising. Not insanely great, just has potential. Certainly better than what I've seen before. It gets just enough stuff right that you start using it a bunch and then cursing when it gets things wrong. Going back and fixing things or trying to use the select and replace tools ends up taking as long as straight typing sometimes, other times it gets everything right the first pass.
It's actually pretty damn good for web searches. It works best when you're only saying a few words at a time or sending an SMS where people expect poor grammar and punctuation. It's useless for emails or any kind of dictation where you don't want to look like an illiterate.
As far as hands-free commands, it's great. When they integrate it with controls, it'll be even better. What I like about spotlight and what Microsoft stole of it for Windows, once you know what the command is you want you can just type it in and get it instead of browsing. I like how I can tell it to play a song or a podcast instead of browsing for it. It'll be great when I can do the same to tell it to turn on or off wifi, location services, etc.