You know, I've never read the 1E DMG cover to cover. You're right, at times this book is the most brilliant thing I've ever read, at times it's so dry and boring it could be a textbook. Sorry, I can't give specific examples because I don't have my book at hand and I'm going from memory. Now I at least want to go back and revisit certain sections.
I think the 1E DMG did a much better job of providing fluff. The campaign-building material is excellent, and I prefer that stuff to what's in the 3.5 DMG on the same topic. I also really really miss the city encounter tables (try finding that in the 3.5 DMG). All three of my copies open right to this section -- long live Emirikol the Chaotic!
What I don't miss are all the to-hit and saving throw tables. Thank Cuthbert 3rd edition simplified all that nonsense.
However, the 3.5 DMG has some great stuff. If I need a quick NPC, I'd rather have the 3.5 DMG -- with its multitude of NPC tables -- than the 1E DMG.
I see the 3.5 DMG as a better rulebook while the 1E DMG was a better book for sparking ideas. of course, many of those ideas have since become a standard part of the D&D game. Maybe it's nostalgia. Maybe it's the simple fact that when I picked up my first DMG it was all fresh and new. Maybe it was just a better book. I don't know. Most likely it is some combination of the three. Has it been outdated because we're in the third (fourth? fifth?) edition of the game? Absolutely not. Has it been outdated by all the video games, novels, movies, etc that it has spawned since? Absolutely not.
* There may be those who read the above and think what I'm saying is that the 3.5 DMG doesn't have any ideas, just rules in it. That's not what I'm saying at all. I get loads of great ideas from my 3.5 book. But I get just as many, if not more, great ideas from my 1E book still.