I still use a 3Gs and the camera certainly isn't horrible, but the biggest issue with it and other early iPhones - which this review doesn't cover - is that it lacks any flash. That's a bigger deal than megapixels since it rendered earlier iPhones inadequate for spontaneous photography in many of the social situations people wouldn't consider bringing a proper camera to.
The original iPhone's camera (and thus the iPhone 3G's, since the 3G changed almost nothing besides the case and the cell radio) seemed to exist mostly to tick the "has a camera" checkbox. It was pretty awful at doing much beyond existing. It didn't even have the ability to change focus!