Below we have a video of a side-by-side comparison between the iPhone 4 and iPhone 3GS running the not-yet-released iOS 5. The video displays iOS 5 working perfectly on both phones and shows iOS 5's new features such as Reminders, Twitter integration and more. The iPhone 3GS does have some faults with iOS 5 however. It is not capable of three features; shooting of HDR pictures, picture editing capabilities such as red eye removal and cropping are not capable, Reader in Safari is gone.
For regular iPhone users, these missing features probably won't even be noticed. Apple has crippled older devices with new iOS versions before, usually hardware constraints are blamed. But, as the video shows virtually everything else is great!