Here are my top reasons for choosing a Kindle 2 over a Kindle 1. This comes from a user who owned the Kindle 1 AFTER having owned the Kindle 2, so keep that in mind. A lot of Kindle 1 users upgrading are saying they prefer it to the 2 because of "contrast" problems or other things they've just grown too used to, but I can say I've never had any issues with my background being too dark or text too light. It in fact looks exactly like the Kindle 1 we have, except the screensavers and such are far prettier due to the deeper shades of grey. So here's my list in no particular order.
TTS - Text to Speech is really a non-issue for me so far. It's a nice technology and a lot of people swear by it. It's definitely usable, if not perfect, but I even have a hard time listening to professional actors read books to me.
5-Way Controller - I -love- this and it would be the biggest reason to purchase the K2 over the K1 for me. The scroll wheel on the K1 is a bit awkward to use, though I can see getting used to it after a while. The problem with it is that it can only scroll up and down. This makes using things like the dictionary, highlighting, clicking links, etc. far more difficult with numerous steps involved in menu selections. While the 5-Way isn't perfect, it's a leap and a jump ahead of the wheel for me personally.
Dictionary - This comes back to the controller for me. To use the dictionary on the K1 you have to scroll up to the line with the word, open a menu, click look up in dictionary, wait for it to pull up a -new- page with the definition for -every- word on that single line. Then you scroll to find the word you want and click again for the definition. With the K2 you just use the control nub to move to the word you want and a short definition appears at the bottom of the page without having to click a thing. If you want the full definition you just hit enter and it takes you to it. I am not sure I'd ever use the dictionary on the K1, but on the K2 I always do.
Internet - If this is a priority for you, this again sees major upgrades just from the improved control scheme with the 5-way controller.
Look and Feel - The Kindle 1 just seems kind of flimsy to me. The Kindle 2 is far more streamlined with better button placement and far superior menu controls.
The addition of the HOME button is nice
The more prominent home button is nice, and making it harder to accidentally turn pages (something I'm not sure I've even done on the K2) is a bonus. I find myself using the NEXT PAGE button on the left side of my K2 more than the right, something
I just wouldn't do on the K1. It also looks like a current gen device and feels solid. The K1, while charming, is a bit Atari to me
Menus - As mentioned before, the menus are vastly improved. No more using the scroll wheel
just to get to the home page
and having to navigate sub menus that pop up for simple things like word lookups and link clicking. It's just much more streamlined.
Keyboard - They both kind of suck, but the Kindle 2's is slightly better in my opinion. The keys on the K1 feel more solid while they tried to "cushion" them on the K2, but the layout on the 2 is better... minutely. It's not made for typing, though, so this is another non-issue. Just having the ability is nice. Having the delete button where the enter key usually is, though? Come on... whose idea was that?
Price - The price is a bit higher for the K2, but also keep in mind most K1s you'll be getting are either used or only about $100 cheaper. This also brings up warranty concerns.
Bugs - It's new so they're still working out a few bugs. I haven't had a single problem with mine, but you can see people having sun fading issues or too grey backgrounds. From what I have heard, though, Amazon is more than happy to help people until they get a Kindle they're happy with.
External Storage - Some find this a con, but I don't really. The internal storage on the Kindle 2 is much larger than the 1, but there is no SD card slot. I wouldn't use it anyway, personally, and I think it just adds bulk to the device and it's just another thing to break or lose. Amazon will keep copies of all the books you buy even after you delete them and you can back up others to your computer. I just don't see where I'd need over 1000 books on my Kindle before purging a few, at least temporarily. A lot of people say they use the SD cards in order to have a file structure for their books, but this is another non-issue for me. When I try to make things neat with separate folders I end up losing stuff.
User Replacable Battery - The Kindle 1 has a user replacable batter, the one in the Kindle 2 must be sent to Amazon to have it replaced for a fee. Either way you're buying a new battery. I think I prefer letting a professional install it for me over having an easily removed backplate that can be lost and that allows dirt easier access to the insides of the device. Not to mention this added a lot of bulk that I feel wasn't necessary.
Hopefully that answers some of your questions. I imagine I'm missing something, but I'm sure others will weigh in on both sides of the fence. If I had to have a Kindle 1 I would love it just as much as my Kindle 2. In fact, I do love my K1 just as much. They're both great devices and when it comes right down to it they both do what they're supposed to do... and that's let you get lost in a world painted in text, which both do admirably.