If AOL Radio were the only internet radio app on the iPhone, it would get a glowing review. Unfortunately, AOL Radio is more like Pandora and Last.fm's little brother. That doesn't mean that it isn't pretty slick for what it offers, it just means that it's not quite as heavy a hitter as the alternatives.
AOL Radio does have a few major things going for it, though. There are a massive amount of stations to select from, including local radio stations in your area. Sometimes listening to a range of music in a particular genre (as opposed to only artists that sound like the one you select in Pandora) is a welcome change. The sound quality is great - when it works. This is a sticking point. AOL Radio has much more difficulty making a connection and keeping it than Pandora and Last.fm. We've in fact only been able to get it work a few times since launch.
Unfortunately these problems plague the app even on 3G and WiFi. But if you can maintain a connection, it's pretty neat to get your favorite radio station playing on your iPhone when you can't get near a radio. The only issue then is if you want to call in and wind something, you won't be able to hear how obnoxious you are on the radio.
If you're not satisfied with Last.fm and Pandora or you're looking to get a specific AM/FM radio station, you should definitely check out AOL Radio. Otherwise, stick with the big dogs, it'll save you some aggravation.