I just got the upgrade, I think it does feel like it plays slightly better, seems like I can move diagonally on Crash Bandicoot better. Tekken, Tobal, Street Fighter EX, etc.., they all still play really slow. I still can't make a fireball with trusty old Ryu on Streetfighter from the left hand side but SOMETIMES I can do a fireball from the right hand side, or, vice-vera I can do his whirlwind kick from the lefthand side, but not from the right. So it seems, at least on my phone, that a diagonal direction going from right to left seems to work sometimes, but left to right it doesn't work so good, at least on Streetfighter type games where you are supposed to slide your thumb on the directional pad down, down/right, and then right plus a punch button to make a fireball. This could be due to the multitouch of the phones just not being able to register it, could be the emulator, I have no idea.
EDIT: I just tried Marvel vs. Capcom with the new version, 1.1, and I can do fireballs a LOT easier than I could before. Maybe they did do something with that, maybe it is a placebo like you said. Regardless, for me, it does seem to work better. I'm not in love with the way the L2 and R2 buttons are positioned, but it's better than nothing and I know there isn't a lot of room to put them to begin with. Would be sweet if one day Droid makes a dedicated gaming phone and positioned some buttons up top for like R1 and L1 buttons, but heck, right now this is way more than I imagined would be possible with a phone. Very nice job by the creators.