I've got an H2, and it makes excellent recordings within its limitations. The internal mics are very good, and it seems, as other people have said, that as a point-and-shoot device it's better than some of the others. The mic in is marginal enough that you probably don't want to use it. The line in is just fine, with the limitations mentioned above - you will probably need to pad, but otherwise the sound quality is also just fine. No digi in, so comparison with JB 3 or iRiver is apples and oranges if that's what you need. Given all that, for the price, there's nothing that will touch the H2, IMHO.
By the way, I read an interesting hint on another list that I want to try - using a sony minidisc player as a preamp for the H2 in a pinch. Plug the mics into the md , set the it on rec/pause, and run the headphone out into the line in of the H2. The minidisc players from sony sound very good, so this sounds like it could be a poor man's (me!) way to use external mics if you already have a minidisc player gathering dust.