Well i mean android restricts the video recording to 320x240, but it should be able to do VGA. The flash is seriously mistimed, so that can be fixed with firmware too. I also think the auto-focus agressivness should be controllable.
I've taken a few very good pictures with it, and it is definatly better than the HTC Hero camera. Personally I dont expect to get much more from a mobile phone camera. Megapixels are misleading of course

It has autofocus and a flash, which is good enough i think.