xGPS, as far as I know, was developed mainly for the first iPhone to work with external GPS receivers (or at least the project started there). It is based more or less completely on Google Maps: maps, route calculation and turn by turn directions. So you do have to have an online connection all the time.
Well, perhaps not all the time as xGPS incorporates an offline mode. There even is a map downloader mode so that you could prepare your trip by downloading all maps needed first and then go offline, but you won't have route re-calculation then (altough you can save routes once calculated for offline usage).
Beside that, turn-by-turn directions are text-only and also available only in english. Unfortunately, the text is so small that you can just read it holding the phone in your hand but surely not while driving your car. Apart from that, the UI is very tidy, which is a good thing in general.
Watch the video:
As you can see, the directions are quite small and hard to read. If you haven't found them yet, they are at the top of the screen.
Beside that, you won't get any acoustic feedback, ever. No "beep" or whatever when you arrive the next turn and also no warning sound if you leave the route or head in the wrong direction (there will be a big, red, flashing sign, though).
If you leave the route or take the wrong direction, re-calculation will take ages. Well, okay, not quite as long as that but definedly much longer than what is OK while driving a vehicle.
All together, xGPS is quite nice (espechially if you don't have an iPhone 3G), but it is far away from being a usable turn-by-turn navigator.
If the developers would add acoustic feedback and maybe a screen that would display a big arrow in the direction of the next turn alongside with the driving directions text in way bigger letters for let's say 10 seconds before the turn, xGPS would become way more usable.
Anyway, that would still be far worse than what you get on every personal navigation device today.
I don't want to nag around, the guys from xGPS sure have done a great job, but it sadly is far away from usability and not worth the effort (of jailbreaking and so on) yet. But I think they're already working on it ;)