It's three generations. The iPhone 3G is a supported platform for iPhone OS 4.0. You do miss out on multitasking though.
>I think its interesting that Mr. Lyons is "blown away" by Android features that will be coming to his iPhone in 30-60 days, with the exception of teathering (which isn't Apple's fault, but AT&T's).
Lack of tethering is both Apple's and AT&T's fault. It's AT&T's fault for not activating it in the carrier profile but its also Apple's for making sure that the iPhone only allowed signed carrier profiles with iPhone OS 3.1 so that you could no longer download an alternate carrier profile with tethering enabled.