Pen and paper are still superior, but iPad sketching is good enough to leave those behind.
The topic of UI sketching on the iPad is coming up pretty regularly for UI designers. People want to know how it feels and if it's going to replace pen/pencil and paper. After a few months using as many drawing apps as I can get my hands on, I find that it's more than adequate for UI sketching needs. Pen and paper are still superior, but iPad sketching is good enough to leave those behind when you're away from your desk. Here's my run down of pros/cons.
My initial reaction was that finger/nail drawing wasn't going to cut it. For one thing, while you can get around the fat finger obstacles by using your fingernail as your tip, fingers don't work because they hide the screen. A stylus helps, but because of the fat tips of capacitive styli and the friction caused by capacitive foam, it doesn't feel as smooth and the foam stylus doesn't glide on the glass. But, I don't think that's a hindrance for basic sketching. I've also read that the sensors on the touch screen aren't really designed to work with fine tips in the same way that resistive (pressure sensitive) screens are. What I think would be perfect is something that glides like your fingernail on the end of a stick--a plastic nib in the center of a capacitive foam tip.
With all my nits and dream stylus fantasies, at the end of the day I think that the fatness of a pen like the Pogo Sketch is arguably better in terms of forcing you to do rough sketching as opposed to fine detailed drawings. Roughness and low-fidelity is one of the important attributes of ideation--generating ideas in quick succession and in volume to explore ideas without fussing over aesthetics. This is how I'm justifying the constraints in my head anyway. :)
That in mind, some designers, regardless of my rationalization, will care about the feel of pen options and responsiveness of drawing programs. There's an interesting blog entry on the doodl.es blog that talks about capacitive styli and the applications Brushes and Sketchbook Pro from an artist's perspective. While some of the discussion about the features of the apps may not be relevant to everyone, the description of what is possible to those who care about the style of their drawings will like the comparison of the Pogo Sketch with the HTC HD2 stylus.
I finally settled on using Sketchbook Pro with a Pogo Sketch the most for its closeness in feel to sketching on paper. It's about as good as it gets for my needs right now. I won't argue with anyone that says it's not as natural-feeling as paper, but it's good enough for me. For detailed work, I think the capabilities of the vector drawing tools in OmniGraffle for iPad are also very interesting, because your lines have all the line properties that OG offers, and can be closed to make shapes, with fill properties. Some of the features in OG iPad are so good actually, that I can see them being useful in OG Pro Desktop.
I'm going to try to occasionally post sketches in this iPad Sketch Flickr group, so watch that space.