Smartphones aren't gonna replace org-mode any time soon either: if you do any work on a laptop or desktop, you'll want org-mode. It's the best way to manage ideas and projects.
From my experience, our smart phones are much better personal digital assistants than Org Mode can be, as robust as it is.
The next biggest frustration is the way it folds empty lines. If you have a paragraph followed by an empty line, when you fold the paragraph, the trailing empty line will get folded as well. This makes it practically impossible to have empty spaces in your outline. Trying to make it work will result in madness for your average user.
Just relenting on those 2 issues and allowing org mode it's own way will go a long way to making it easier to use, I've found.
The main benefit I've found for using org mode is being able to write up TODO lists and then easily move everything around by folding it and cutting and pasting. Also being able to change the organization by easily changing the hierarchy is amazing. I know of no other application that allows so much ease of change.
After that, the spreadsheet capabilities are really quite interesting. I've actually implemented full on XP-style planning lists with automatic velocity calculation in org mode -- complete with automatically generated burn down charts.
Of course, other people use org mode for completely other uses. This is just what I end up using it for.
For example, I use org-capture+datetree when taking notes and can have months worth of information in an org buffer. I like to use '2 C-c <TAB>' when situated on a month headline to show me all of the top level headings for each day in that month. It gives me a nice overview of what I have been doing for the month.
With regard to your second issue, you can control this behavior with the org-cycle-separator-lines variable. By default, leaving two blank lines will make org leave a space in your outline when folding.
You could also use `org-cut-subtree` or `org-copy-subtree` for that. And of course `org-refile` (C-c C-w) is very useful, although you'll probably want to customize it to allow refiling to other places than just the first level headlines of the current file.
I generally write in org mode and then export to whatever I need to.
I use it on and off for TODO list management but it is really good for writing.
It is OK to edit text org files with a plain text editor.