Read several mags that state the gen 1 is better in everything except age! Fuel injection is poor on the gen2 as its too on/off, but it can be fixed with a power commander. It's not got the best seat either. If the gen 2 was better than the gen 1 do you not think we would all have changed or gen 1's for 2's?
No, a lot of people don't have the money or the inclination to buy a different, not better, bike!
Had the FZS 1000 myself for a while, and my dad had the FZ1. As stock, both are pretty much the same speed and acceleration, the difference is how they feel when you ride them. The FZS is for sure a more practical bike, it's bigger/more spacious for both rider and pillion, it's got a better tank range and mpg too. The FZ1 though i found to be more fun when getting on it, the suspension is better, engine happier to rev (which is a good or bad thing depending on your personal preference),and the frame is considerably above the FZS in terms of handling. That said, it has a smaller tank and uses more fuel, and personally I didn't find it as comfortable as my FZS.
I think it really depends what you want from a bike - if you're doing a lot of longer journeys and fancy something a bit more comfy and with a bigger tank range, I'd go for an FZS. If you want something that's a bit crazier for solo fun, the FZ1 is probably my choice. Either way, they're both great bikes!
If you do get an early FZ1 though you'll need to get a power commander as the fuelling wasn't good at all on some, been sorted on the later models though! And if you get an FZS you'll want to get it ivanised. Both bikes, but particularly the FZS benefit a great deal from reworked suspension, and both bikes have ground clearance that can be a limiting factor if you're getting on it!