The biggest hardware issue are the faux joysticks which are not responsive enough. Games like Asphalt 6 and Star Battalion are very difficult to play with the touch pads namely because you will end up crashing into everything as the pads can't keep up with your thumb movements. Adjusting the in game sensitivity helps, but still leaves the touch pads feeling sluggish. The rest of the controller is great.
The included games are decent. Asphalt 6, Star Battalion and Crash Bandicoot are great. Bruce Lee down right sucks, Madden is boring and The Sims 3...well less said the better. Selection of Xperia Play enabled games are limited now as well, but I hear Sony wrangled a mobile version of Minecraft as an exclusive, which sounds cool.
I haven't bought any other games at the moment, so I can't say much about what is available. Suffice it to say, that if you are on the fence about the device, you may want to wait for more compelling titles.
Android Gingerbread is great and runs smooth on the phone. The lack of 4G is often cited as a weakness for the device, as is the 5 megapixel camera, but that stuff really doesn't bother me. The game interface intrigued me and I was pleasantly surprised by it.
One thing that has proved disappointing is the recent removal of the best emulators on the Droid Marketlplace, namely NESoid, SNESoid and GENSoid. All 3 are the product of a single developer, yongzh, who has apparently had all his wares removed from the Market (he also has emu's for GB, GBA, etc.) Supposedly we will see official releases of classic games for the Xperia Play soon, and I hope so, I wanted this as not only my phone, but emu machine as well. It looks like there are work-a-rounds to getting these emulators installed, but any subsequent updates will remove them from your SD card, at least that is my understanding (correct me if I am wrong).
So in short, if you are on the fence about this, wait. If everything I said still leaves you interested, you may find the phone rewarding. Hopefully Sony will stick by the phone and get good games to users.
Oh and hopefully I don't have my personal data stolen by hackers, but...yeah

