The biggest impact of Google Instant is that it teaches users how to search more effectively. Based on these dynamic results, users can tweak their query such that it helps them find the exact answer they were looking for, even if they started with a bad query. Teaching users how to improve their search query is huge. The immediate impact is that it improves users' perception of Google's search results. Same with speed - users will perceive Google as being much faster than anything else out there because of the instant results.
Perception is reality. Speed and relevance are a search engines bread & butter. I think Google just upped the ante by a lot.
Credit to Microsoft though - this probably wouldn't have happened if it weren't for Bing's recent gains. Proof that competition provides the best kick-in-the-pants needed to innovate.