I just wrote an email to my immediate family laying out my thoughts about iOS 5.0 and what they should do about upgrading and using iCloud and the like. I realized as I sent it that it might be interesting to more people so I'm going to post it here. It's worth noting a few things about the perspective. I've been running iOS 5.0 on an iPhone 3GS and WiFi iPad 2 for a bit over a month and on a fourth generation iPod Touch since June (although I don't do anything other than software debugging on the touch). So I don't have any experience with 5.0 on an iPhone 4. I suspect it's fine but I haven't tried it personally. I've been running the gold master for the week it has been available. The folks I was sending the email to have a WiFi iPad 1 and a 3GS.
Anyway, here's what I wrote:
1) You'll need iTunes 10.5. I suspect iTunes will ask about upgrading sometime today. That should be fine but be aware it will take a little time so don't do it if you're in a hurry.
2 ) The next time you sync your iPad or iPhone to the computer after the iTunes update it's likely to ask you if you want to upgrade. If you do be prepared: it will take a while to update and restore. My phone (which has more files on it than my iPad) takes about an hour to restore after a system upgrade. It's all pretty seamless but it takes a while because iTunes first backs up the phone, then downloads the system update, then wipes the device, then installs the update, then puts all of your files back from that backup.
3 ) I haven't run iOS 5.0 on an iPad 1, but I suspect it's a fine thing to install. I still would not recommend installing iOS 5.0 on a 3GS phone. I've been running the "Gold Master" released version for a week and it's faster than the betas were but the phone is still very sluggish compared to how it was on 4.3. I still feel playing real-time games on the 3GS is ugly with the quasi-random freezes. Also be aware if you install 5.0 it may be difficult or impossible to go back to 4.3 (the new version usually updates the cellular baseband firmware in ways incompatible with earlier OSes, so to roll back you have to do tricky re-flashing of very low-level chips.) I ordered a new iPhone 4S that I'm getting on Friday, but the only thing that's made running 5.0 on my 3GS acceptable was knowing it was a short-term solution. If they follow the pattern you may find that the inevitable 5.1 works better on a 3GS than 5.0 does. I would suggest waiting at least a week or two and see what shakes out with the 3GS/5.0 situation. And you have to be careful with that because iTunes will encourage you to upgrade. If you just click things without reading you'll get an upgrade.
4 ) iOS 5.0 has iCloud for file storage and you can use iTunes Music Match to stream your music library from online storage. Music Match costs $25/year. This is going to be really cool, but I'd advise staying away from both features for a while. I've tried Music Match on my iPad and it makes a real mess out of things. I told it this morning to download all of my Talking Heads music (I have ~150 tracks from Talking Heads) and my iPad started well over 400 downloads. No idea what it's doing, but it's taking quite a while. Apple cloud things tend to get overwhelmed in the first few days after launch so I'd suggest keeping all of your contacts, calendars, and data files exactly where they are for the first couple of weeks. I turned on Music Match on my iPad because most of the time I listen to my phone - which I'm still syncing manually right now. I have some files on iCloud for testing but only stuff that has multiple backups.
5 ) Having said all of that, turning on the "Sync over WiFi" option in iTunes is pretty awesome. With that your iOS device will sync (and backup!) whenever you plug it into the charger if iTunes is running on the machine you use to connect. None of that uses iCloud in any way - it's just your device and your computer talking over the local network. I recommend turning that on as soon as you can. I've been using that for months now - but I still haven't turned on backing up to iCloud because I trust THAT a lot less.