Late Monday night, the initial release of Skype for the iPhone was made available in the App Store.  We've had the opportunity to test it and have some comments to make for those of you diving in.

First, The Good Stuff

• Free Audio Calls to Other Skype Users - By far, this is the most compelling reason to use this app.  There are so many people in so many corners of the world using Skype, and calling any of them on their Skype-enabled computer or mobile device is free.  Yes, free. 100%.  And it works.  If that's all you care about, stop reading now and go download it. The application itself is also free. You're still here reading? Ok, let's move on.
• Cheap calling to land lines - Using SkypeOUT, you can call land lines a pretty cheap rates (including monthly subscriptions that make certain calls free).  See our tips section below for an idea to keep those rates down even when traveling internationally.
• Text chats, with history - One benefit of Skype is that the chat history is saved and shared amongst users.  This means that any chats you have on the iPhone will be reflected on your home computer and vice versa with one caveat: you or the person with whom you're chatting needs to be online when you launch the app.  Skype stores the chat history inside the client, but shares it with all other online clients (in multiple locations).  It's actually pretty slick.

Not a Full Skype Implementation

• Audio chatting over WiFi only - Many will complain that AT&T limits user's abilities here, and while that may be true, it's for our own good.  We have tried VOIP apps on 3G and EDGE networks, and they're terrible.  Those data networks are not built for real-time, two-way, streamed conversations.  The latency is very high, and the packet structure just isn't built to make the experience pleasant at all.  You're much better off over WiFi.
• Only works when it's running - Like other iPhone apps, Skype doesn't run in the background (this is a limitation that Apple imposes on everyone... except Apple).  This definitely limits the app to a "mostly outbound calling only" mode.  If you wanted to Skype latenchat with another iPhone using friend (perhaps someone traveling in another country who doesn't want to roam) you'd have to arrange a time or perhaps SMS them first to sync up.
• No Groups - The Skype client for Mac and PC supports organizing your contact lists by groups.  The iPhone doesn't appear to support that, so if a lot of people are online, you'll have to navigate through your address-book style contact list to find someone to call or chat with.
• No Video - This is probably obvious, but we'll state it anyway: the Skype iPhone app doesn't support video. With the camera and screen on opposite sides, would you want it to?
• Very limited settings options - The only option in the Settings app for Skype is a choice regarding auto-login. Other than that, you're stuck with all sounds, fonts, and other options chosen by Skype. But this is a first release, so hopefully more options will be made available in the future.
• Sound Quality - Skype for iPhone uses Skype's older G729 codec, which has a sample rate of 8kHz.  This means that the sound quality is actually quite warm and full, but doesn't have the high-end range that adds spark and sizzle to voice chat. The currect Mac releases support the SVOPC codec, which doubles that sample rate to 16kHz and definitely adds more range to the signal. Users of the Windows public beta have access to Skype's brand new SILK codec, which supports up to 24kHz sample rates, and uses less bandwidth while doing it.  What the iPhone will have access to in the future is anyone's guess, but all these fancy codecs use CPU horsepower, and that may well limit our options going forward. The Skype engineers are a crafty bunch, though, and so I wouldn't close the books on this one yet. 
• Speakerphone Switching - Skype supports both standard and speakerphone modes, but switching between them is not as smooth as that of the iPhone's built-in phone. It sounds like the signal is being re-engineered for one vs. the other (and there is good reason for this: in speakerphone mode you would want Skype to do some echo cancelation), so wait for a break in the conversation before switching this, otherwise you'll miss 2-to-5 seconds of audio from the other party.
• No Call Waiting - On the Skype desktop apps, if someone calls you while you're on a Skype call you have the option of taking it, similar to call-waiting on cell phones and land lines. If you're on the iPhone version, the other caller is simply presented with a "Call Refused" message and that's that.
• It's buggy -- In the 6 times we've launched Skype here since downloading it last night, it's crashed 3 times, with two of those happening in the middle of a voice call.  Clearly this is something us users must treat as a "public beta" in essence.  But hey, it's free, right? And it mostly works. 

Tips

• Seeing prior text chats - As stated above, Skype for iPhone only receives audio call requests and text chats when it's running.  But if someone sends you a text chat and leaves their computer running, you'll see it when you launch Skype.  This is also true if YOUR computer is logged into Skype elsewhere, too. So if you rely on seeing what others have typed to you in Skype, dedicate a computer to running it at home or in the office and you'll see all those chats as soon as you log in on your iPhone.
• Cheaper International Calling - If you travel to other countries, you might want to look into setting up a VPN account (either at your home or office or signing up for a turnkey third party like HotSpot). If you log into the VPN from your iPhone first, then Skype will be making all of its calls from a US-based IP address, costing you less for landline calls.
• Voicemail - If you plan to use this a lot, signing up for the (paid) Skype voicemail might not be a bad idea given the lack of call waiting. 

This is a fantastic start, and despite our list of nitpicks, really raises the bar for the iPhone VOIP experience.  Plus, with Skype's engineers behind it -- and now thousands of us using it -- the product will definitely get more robust, more features, and mature in ways we probably can't even imagine today.  Plus, as we said, it's free.  Go get it!