I have one of these phones and it's pretty good by and large. There are a few annoyances. Email and web feeds will only download to the phones 32mb internal memory (not much use when you have a 60mb podcast to download). The 4gb memory card is completely ignored except when used as a camera. The web browser is surprisingly good - with a zoom facility (which is surprisingly quick) and with the capability to change to landscape. Navigation is quick and the shortcut keys on the 3, 6, 9, # keys help a lot.
As a audio/video device it has taken a step back from the w660i (which is a walkman phone but that's no excuse) because for some reason it needs to re-index the files each time - something the w660i didn't do. It has a higher resolution than the w600i but doesn't have the processing power to deal with it. So while you can put media at 320x240 on it - it's struggles and you usually end up with the audio and video out of sync.
As a phone it functions pretty well and the addition of skype (on three) is a nice option and seems to work reasonably well - though switching back is a bit of pain but I guess that's because it's a java application on the phone rather than a build in function.
Since I've owned both the w660i and the k660i I can agree whole heartedly that the headphones are a huge disappointment. The w660i headphone (ear plug) was much more comfortable but too quiet and I gave up on it because it was too quiet on the train. The in ear headphones (supplied with the k660i) give a reasonable enough quality sound but I must have big ears because they keep falling out! I'm guessing this has something to do with the weight of the mic attached to the headphones. I was disappointed to find that the headphone mic didn't have a 3.5mm jack socket like the w660i which means you have to replace the whole thing with another set of sony ericsson headphones.
My verdict is that as a phone it's pretty good (7/10) but I would just bin the headset and get another if you plan on using it as a mp3/radio device.