If you eventually update your phone i.e 2.2 then would you loose those contacts and have to put them all back in? Thinking that if you save it to your SIM then you might not have to input all your contacts again and if you ever wanted to change phones they would be saved there? Am i understanding this correctly?
Having all your data wiped occurred before but not with 2.2, although, it's always safer to backup your data with some sort of backup program that allows you to backup to sd card and/or online JUST IN CASE.
The sim option is best if you plan on switching phones often or in the future as it's the least troublesome because your contacts will automatically be in your next phone. But, as mentioned by Loba, limited number and fields. It'll probably just be Name and Number and not much else.