There are a number of things that have already been recounted in this thread
that make the SB2/SB3 superior to the SB1.  Some others are the geekport,
more advanced wireless support (wireless G, WPA, etc.), support for
visualizations, and bit-perfect pass-through (important if you want to
stream WAV-encoded DTS).  And the significance of SB2/SB3's hardware support
of more audio formats goes beyond simply helping alleviate bandwidth
usage--ffw/rev doesn't work on any formats that aren't supported in
hardware.  There are also some quirks with the SB1's digital output section
like the fact that it sometimes, under certain circumstances, swaps the left
and right channels (I don't recall the exact circumstances, it has to do
with switching between mp3 decoding and wav).

This being said, I happen to have an SB1 and I have no problem living
without any of those improvements.  My squeezebox still does what I bought
it to do and it does it wonderfully. I've never personally run into the
channel-swapping issue (or maybe I have and didn't know it!) and since I
only stream 320kbps MP3 and my squeezebox sits on a wired network I wouldn't
currently get any benefit from the new formats or the larger buffer.  This
all just goes to say that you can still certainly get a great and satisfying
experience from an SB1.

HOWEVER: the main reason I have never, and will probably not in the near
future, consider replacing my SB1 is RHAPSODY SUPPORT.  The SB1 will run
under Slimserver 5.4 and the RealSlim plugin allows me to interact fully
with Rhapsody.  This, to me, is the "killer app" for the Squeezebox.  I have
heard some rumors of folks getting RealSlim to work on version 6 of the
server but I tried it briefly with no success--I would think the rather
fluid nature of the 6.x server development makes this a delicate solution at
best.  Also, there have been some rumblings on these forums that perhaps
Squeezebox 2/3 may support the appropriate DRM to allow playback of
Rhapsody/Napster/Yahoo music.  But until then, if you're looking to use
Rhapsody the SB1 is the best option in the Slim world (the SLIMP3 would
work, too).



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