Usage #1: Recording live music. I've used the Zoom H2 for about 2 years for recording practices and performances of my classic rock & roll band. I wouldn't be without it.
I use the built-in compression feature (set to DRUM or VOCAL) to prevent overmodulating. I start the Zoom H2 when we are setting up, and just let it record all evening. With a 8Gb/12hr chip, don't bother shutting it off between sets. For indoor practices, I use the Low mic sensitivity, with DRUM compression setting.
For outdoor performances, between songs it's sensitive enough to pick up the ambiance: a crackling bonfire, crickets, or crowd comments (a good use of the 360-degree Surround feature. I usually set the Zoom H2 to Medium mic sensitivity, put it on a microphone stand back near the sound booth/tent, with an extension cord for AC power, a small night-light (is AC still on?) and fresh batteries in case someone trips/unplugs the power cord.
I've even set the Zoom H2 in my open guitar case on the floor in a nightclub, maybe 15' from the stage, and it picked up the between-song comments of the musicians, as well as dynamite recordings of our sets.
I have a whole pack
Memory Card Carrying Case, Black of SDHC cards: 2Gb (3hrs recording time, in CD-quality), 4Gb (6hrs), and my favorite, 8Gb (12hrs
Transcend 8 GB SDHC Class 6 Flash Memory Card TS8GSDHC6) so I can always pop in a new one at a moment's notice. Each card has a tiny label with my name & phone, plus a card index (SD-01, etc); I keep a small printed spreadsheet to show what performance is on what card, which is available for use, etc.
Once home, I back it up the files to my laptop, then process the WAV files with Audacity (free, open-source, multiplatform utility) to do fade-in and fade-outs, pull out individual songs, normalize tracks, make demo tracks or MP3s for listening on the go.
Usage #2: Spoken audio. My spouse goes on business trips and interviews groups of people. She's used it to capture the group comments for later transcription. Here's where other Zoom H2 features are nice: the Automatic Gain Control (AGC), which bumps up the volume if the input gets too low, and the Surround feature, so you can hear everyone talk, in the audio location where they were actually sitting. I've used it for large conferences to record multi-hour presentations or speeches. Handy.
Usage #3: Converting vinyl to digital. This is a future task, but with the Zoom H2's Line-In jack, you can record from other devices (perhaps a turntable or stereo amp output?) to digitize and save records or other media for posterity. If you already have a turntable, why pay more for an additional single-purpose digitizing device when the Zoom can handle it already?
All-in-all, a great little device! Buy it!