Video chat is a potentially killer application (Apple's iSight camera sales prove this) but the implementation is busted. The other problem is that until video chat is more reliable, less and less people will even bother trying it. I'd venture to say that 95 percent of the people that purchased iSight cameras don't use them anymore. The most common reason? "There's no one on my buddy list to video chat with."
So it's a vicious cycle, no one uses their cams, so no one video chats. I believe that more people would be compelled to use video chat if the experience was better. But it's not, it's disappointing and people slowly stop connecting their cameras to their notebooks because, what's the point?
Several people pointed out that video chatting works just fine for them, but most were only chatting one-on-one and/or under very controlled situations. Just as many people IM'd me to say that video chatting (or "VIM" as I like to call it) is mostly busted in iChat AV.
Serious iChat AV users are spectacularly underwhelmed with the image quality of the iSight cameras that are built into the iMac, MacBook and MBP. This is mostly because the new iSight camera is USB-based whereas the external iSight runs on FireWire (if you look in System Profiler you'll see the iSight hanging off the USB bus.) The other problem with video chat is that you're dealing with packet-based transfer as opposed to continuous, which is much better for video and audio.
Two other features that need to be added to iChat AV are multiple protocol support (Yahoo, MSN, ICQ, Jabber) so that I can log into multiple services and once and have cross service conferences and support for logging into multiple accounts at once. And while I'm at it, Apple should acquire Chax so that they can finally have tabbed chat windows in iChat.
What do you like/dislike about iChat? My IM handle is in the comments below.