I am an iPad original version user myself. Purchased it in October and it will be one year old in 10 days. I updated the software and while I certainly don't have all of the features at my disposal in the new software (no camera for instance) I have suffered no ill effects either as a result of the upgrade.
All apps work as expected (Contacts app has one very small issue but does work), I lost no data whatsoever and everything seems to be going fine for me.
Certainly I wish that multi-touch gestures were available to me and I was hoping for photo editing in the photos app (again - no camera on the original model) which are not available - but I cannot agree with your statement ...
The iOS5 update, however, is designed to reduce the functionality of the iPad1, thus I am not unlikely, but, rather, also a typical user, albeit one using the first generation device.
...because my iPad DOES have more functionality since the upgrade - not all of the features that I wanted - but more functionality nonetheless.