I'm maybe 75% of the way through the game on Medium difficulty (I'm in Japan, for anyone playing the game who knows what that means), and I'm digging it. It doesn't have the pure "holy shit, this is cool!" thrill that the first one did, but it's the third sequel (counting Rock the '80s), so really, that's probably not fair to expect.
But the good news is, the loss of the original Harmonix team to Rock Band does not hurt the game. There are definite touches where you can see the changes that have been made, some good (original artists instead of covers!), some not as good (tons of product placement), and some that I both like and dislike. This includes boss battles against Tom Morello and Slash (cool to see this kind of integration with real life guitar legends, I'm not wild about the boss battle mechanic, even though it's not super-hard to figure out or anything) and slicker, more animated cut scenes (they're fun, although I miss the sort of grungy, rock art designs of the first and second games).
The song list is fantastic. I was hoping for some Green Day off American Idiot, some Beatles, and I'd love it if the next game has The Fratellis, but this was a pretty damn impressive song list with some true favorites on there. Muse's Knights of Cydonia is an awesome pick... and very hard to play, too. That one's a challenge. It is definitely a touch harder to play, but as someone who's grown in skill enough to beat Medium but not really challenge Expert, I liked that incremental bump up in difficulty.
What I'd love to see in future games is for them to ditch the "rise to fame" story that we've seen in all the Guitar Hero games thus far. I don't remember who said it, but it doesn't seem that credible that a cover band would rise to popularity like this, although honestly, it's not realistic to have you playing original songs because where's the fun in that? But if you're going for over-the-top story, why not take it a bit further? I'd love it if it was a "Conquering Hell" story along the lines of Black Metal or even a twisted romance/coming of age tale like Bryan O'Malley's singularly unique Scott Pilgrim. Or even a "music is magic" thing like Phonogram. Basically, I'd like to see something like the music-influenced stories of comics, something that's as much story as it is music.
But really, that's just window dressing. Guitar Hero III has plenty of that, too, including a ton of cool novelty guitars, outfits and characters. I've purchased Metalhead, a decommissioned '50s style Soviet robot with a laser gun guitar, as my default character. Kind of cool to think about unlocking both Tom Morello (of Rage Against the Machine) and Slash (of Guns 'n' Roses) and playing in dual mode with a friend, each of playing a real guitar legend.
Overall, big thumbs up. The one notable thing missing is online play, which is available for the other platforms but not PS/2. I kinda wish I'd never bought that online adapter, because I rarely ever use it. I would use it for Guitar Hero, though... shame I can't.
Oh, and I definitely recommend either getting a wireless guitar or buying the Guitar Hero III bundle that comes with the new wireless guitar. Playing wireless is just a nice little touch that makes the game more fun.