T-Mobile USA said it will start rolling out a significant software update to all of its T-Mobile G1 customers this week that will add a ton of impressive features to the phone, ranging from video-recording to its first touch keyboard.

The software update, which is code-named Cupcake and officially goes by the name Android 1.5, has been rumored to hit phones for months, but this time it’s really happening. As someone, who uses the G1 as their primary phone, I thought I’d sift through the 30-or-so updates to find the five I’m looking forward to the most (even though the one thing I was hoping for—improved battery life—didn’t make the list).

Here’s the five most exciting G1 updates in order:

1. Improved camera speeds: Google (NSDQ: GOOG) said the camera will start-up and take pictures much faster. This is crucial. On multiple occasions, I took a photo, put the phone away—only to hear the shutter click in my pocket. Blurry images were about all I’ve managed to take with the phone. Also new is photo uploading to Google’s Picasa.

2. Video recording capabilities: This one is huge. To date, the G1 has not been able to record video, which seems somewhat archaic (even though the iPhone doesn’t allow it either). Videos can be able to be uploaded to YouTube. The video will be formatted MPEG-4. No word on whether T-Mobile will allow uploads to cross its cellular network, or be restricted to Wi-Fi.

3. Virtual keyboard: One reason I really like the G1 is because it has a slide-out keyboard. However, I think others have found it annoying to slide it out out to send short test messages, like “yes.” I have a feeling the new “on-screen soft keyboard” will be just the trick to make those tasks much faster.

4. Faster GPS: One of the tedious parts about the phone is finding your location quickly in Google maps. I typically don’t leave GPS running because it drains the battery. But that means if I want to find something fast, I have to wait for GPS to boot up, get a connection, and then finally find my location. As it is today, it’s simply not worth it.

5. The small details: The final things that I will enjoy the most are a host of small finishing touches to the phone, which sometimes feels like it is in beta. Users will be able to do “batch actions,” such as deleting numerous emails at once. Two cool new contact features, include having a contact’s photo to show up in your favorites list, and being able to see the status of friends in Google Talk.