I must apologize up front for my long response to this debate. I too feel like this is an excellent topic. I have some input regarding usage of the iPhone 3GS that's just as pertinent to consider.
The main question, " Does the 3GS on IOS 5 feel as sluggish as the 3G on IOS 4?" actually boils down to whether or not to upgrade from an iPhone 3G to an iPhone 3GS vs iPhone 4 or 4S. Even though, the questions were well answered by tpulak, the very same day it was asked, there were overwhelming bits of responses (some concise and informative, to say the least) that go on and on. As I read each reply, I felt that everyone had excellent points to make, however, later I became lost in the details from a back and forth debate, which became entertaining as well as amusing, yet relevant to convey...
While ckuan and tpulak, both clearly made many solid points regarding iPhone 3GS, 4, and 4S, there is a great deal of knowledge that can be informative, yet debateful like we've seen, when deciding which instrument best fits one's needs. Practically speaking, I have to give credit where credit is due and agree with tpulak's responses, the one marked with answering the original question. Tpulak original answer seems to fall in line with understanding the consumers question and needs. To further support his statements, I thought I would comment from my consumers perspective and personal experience regarding the iPhone 3GS. (Again, I apologize for the length inspired by the previous entries.)
I am just an average consumer. I don't have experience regarding app development or software engineering, but what I do have experience in is the everyday use of the iPhone 3GS with IOS 5. It is by far the best iPhone I have utilized. I do not have problems with it being sluggish; as a matter of fact it's quite faster than I had hoped. Faster then 3G and just as fast, sometimes faster than 4 or 4S... I'll admit, I really wanted to be able to upgrade to iPhone 4 or iPhone 4S. At the time it came out, the newly revised iPhone 4 was beautiful with smooth edges, and a new look and feel that was quite impressive. While I may not understand the technology behind smartphones, like ckuan, I really do not care as long as the iPhone works and makes complete sense to own. But, I couldn't afford to just go out and upgrade every year or two on these gadgets, even if I wanted to. I had to stop being an emotional buyer, feeling like I had to have the next best thing or buy something because the 'So and So's did, therefore I should. I have to think more practically. When I compared the iPhone 4 and 4S with iPhone 3GS, I found the only things I might possibly miss out on (beside a few other features) are Siri and Facetime. However, since I didn't have them in the first place, makes it difficult to miss them, anyway. It really wasn't a big deal for me missing some of the features available with IOS 5 on iPhone 3GS. All I knew is that my iPhone 3GS was faster and smarter than before, when I had iPhone 3G.
What's nice about upgrading and using the iPhone 3GS is the ability to use the multitask bar and multitask while other apps are open, Notification Center, Reminders, Compass, using MMS, e-mail, text messages and IM (Instant Messaging via Apple ID), access to digital magazine subscriptions, Twitter integration, iCloud and storage, better gaming with use of the Game Center, the ability to use airplay with Apple TV (nice one!), also being able to print to an airprint capable printer right from my iPhone 3GS, and my favorite thing is reading books in iBook and I can add, open and store my documents in PDF's in iBook as well.
(If only I had enough money to throw around, sure I would get the latest. That's honest and true.) So, sure the iPhone 4 or 4S are good buys before the iPhone 5 with various reasons to own or upgrade. Some would say they're the next biggest and best tech, faster, hundreds of features, software upgrades like IOS 5 and IOS 6. However, as a sales consultant, I'm obligated to give objectively many reasons one should buy the latest and greatest iPhone. However, as a stay at home mom and practical consumer, I might say differently and to each is own... However, I'm willing to bet overall that more people are impressed with the iPhone 3GS, comparatively speaking. I know I have and still am. I'm also willing to bet, more consumers are likely to use iPhone 3GS until it either become obsolete or their contracts are up, skipping iPhone 4 and 4S by diving right into purchasing or contracting the iPhone 5 once it's less expensive down the road. That's what I'm planning to do. In 6 months to a year, sometime after my contract is up, I plan to get the iPhone 5 and not iPhone 4 or 4S. I know I qualify at 18 months for a new phone, but why should I upgrade so soon and give up on the good thing I have already. Don't fix it, if it ain't broke! Right?
Finally, the iPhone 3GS has been a great product for me and my family, especially with all the enhancements from earlier software upgrades like IOS 5 with all the added features I mentioned earlier and more!
Just a quick note: I recently upgraded my iPad 2 and another iPhone 3GS on my account to IOS 6 and so far I like the subtle improvements the upgrade gives. You get more Parental Controls, Privacy and Location Services, New Maps features, Facebook Integration, plus backing up your iPhone (Since IOS 5) via iCloud instead of plugging into iTunes has never been easier, Using the Do Not Disturb button, Passbook for storing boarding passes, tickets, store cards, coupons etc, and many more.
Thanks for listening, I hope this helps someone at some point!