Unlocked phones (phones purchased unlocked from the mfr, not from a carrier and then unlocked)
-choose any carrier you wish (provided hardware + frequency matches)
-use the default manufacturer's version of the OS = faster updates (e.g. Nexus One and Android 2.2 has been out for weeks, while many people are still stuck with 2.1)
-All features of the phone are available - phone companies like to disable certain features when providing their own version of the OS (usually to charge for you to use them, or because they take too much out of the company profit)
-Usually cheaper if you can get a lower monthly rate for 3 years vs a "free" phone and a higher monthly rate for 3 years.
-Large sum of money up front, vs 3-year financing (though see the last point above)
-Often no monthly-plan discount for buying a phone outright (though if you use a carrier that doesn't do monthly phone subsidies, you get the lowest rate regardless of phone - e.g. Wind or Mobilicity)
-Your warranty is with the manufacturer, whereas a locked, carrier-specific phone may be warranted by the carrier (and may be an instant swap in-store, should you have issues vs. send the phone to manufacturer to be fixed and wait)
-No "free" upgrade after x years.
That's my take on the matter.
For the record (in case there's any bias
), I have an unlocked phone and a service plan with a company that doesn't offer phone subsidies (Wind).