Hey,
I'm running Cyanogenmod 5.0.5.3, not the latest 5.0.6 (because I feel from reading the comments people are leaving on cyanogen's site that it has some problems).
I can answer your question related to smoothness, and yes, it definitely does improve the smoothness a lot. In all apps. Now I never had this haywire touchscreen thing ever, which people seem to be complaining about? What do you mean exactly? The only thing I've noticed is that when I'm even touching the screen slightly while not meaning to (all i'm meaning to do is hold the phone), and I press something on the screen which I am trying to, the screen registers it somewhere completely different. Basically the only touch screen issue I've ever had with the N1 is that I gotta make sure that while holding the phone, I'm not touching the screen even slightly, because even the edges are very sensitive.
Other improvements are wireless tether ability (AWESOME), use camera light as flashlight (with N1 Torch), Titanium backup (Backs up all your apps to your SD card, so if you wanna try out different ROMs you just have to get it to restore your apps, not have to download everything again), the ability the rotate the screen in any direction, not just portrait and left, customize the glow of the trackball for notifications (speed, color), make the browser force websites to load in their desktop versions...those are the improvements I can think of from the top of my head, but I'm sure there are more.