I think that a lot of it depends on what you're upgrading from. I skipped Gen 2, so upgrading from Gen 1 to Gen 3 encompasses all sorts of improvements. Any perceived downside to thickness and weight is a nonissue to me, as they both are improvements over Gen 1.
Different people have different thresholds of perception, so to some people the 4-fold increase in resolution jumps off the screen, but to others its not even perceptible. It's the same as with HDTV. Ever since I went 1080i/p about 5 years ago, I cannot watch SD TV, as it looks like a blocky mess, but others don't see (or don't care about) the difference. My mother is one to whom analog SD TV on a 32" tube is just as good as HD. *shudder*
Me? I got a 32GB Wifi on Friday and my Gen 1 64GB has already been listed on Craigslist...