I always start with all the basics, work through video and iPod and then end with e-mail and the web. The web is what always gets the most wows... the zooming in and out, rotating the iPhone sideways... that's usually when even the naysayers finally good "ooooh" and get it.
I like to show off how u use the touch screen, especially the pinching to zoom LOL. My dad has never seen anything about the iPhone and he was completely amazed hehe. Also doing a search on google maps is one of my favs
The beautiful display. It is bright, crisp, clear. How fast it switches between apps. There is no waiting. And the number one thing that sold me and everyone who see it? Scrolling
The display and the way you interact with it is elegant, beautiful, and is the WOW factor for the people I have shown it to. The apps like the web and cover flow are great, but more than not it is google maps that has people impressed.
Haha, I have an Apple hating friend, and someone coaxed an iPhone into his hands, and he ADMITTED to me that it was "Okay, I guess...." and this is a hard core PC kid right here. He just liked the format in general. =]
The people that have seen mine have mostly been floored by different things. For some, it's as easy as the "Slide to Unlock"....they're already hooked. For others, it's the satellite maps, coverflow, the fact that his has WiFi (many don't know this), visual voicemail, etc.
Overall, however, I think it's just the physical beauty of the device and the bright, clear screen.
If you bring up a photo and then just flip the phone away from you. So now the phone is pointed at the person you are talking to, but it is upside down. The photo automatically flips upside down so that the it is right side up to the person looking at it.
I start with playing a Super Nintendo game (Super Mario World works well, or maybe Final Fantasy III), then cycle through Doom and Quake. I'll usually VNC into my home computer to show off how many different things you can do with it and how fast the EVDO internet speed is. I'll finish up with a quick demonstration of TomTom, complete with turn by turn voice directions.
...oh wait, you can't do any of those things on an iPhone. That's right, I must've been talking about my Treo.