We have both models in our household, they are both great cars, here's how I see them compare.
There is very much familiar about the mk2, the main differences that jump out at you are the interior and the power steering. As Jocko says, the steering on the mk2 is streets ahead of the mk1, and it does make the car much nicer to drive. Mechanically, the cars are very similar, but the V-TEC engine feels gutless at low revs, and the change doesn't seem to have done very much for the MPG. Tax for the mk2 1.4 manual is a band lower than the mk1, about £20 saving, not sure how the CVT fares.
The interior is a bit of a mixed bag really. The overall effect is of a much more modern interior, the seats are more comfortable with better support, but the plusher fabrics used feel less hardwearing than in the mk1 - ours is showing wear at sub-60K miles, whilst the mk1 seats still look great at 170K+ miles. The dash in the mk2 looks more modern, but again the materials used feel lower quality and less robust than the mk1. I find the front legroom slightly less in the mk2, but rear legroom is still excellent. The boot is slightly narrower in the newer car.
Things like the retracting boot cover have disappeared, replaced with a flimsy, cheap feeling lift up flap that wouldn't be out of place in a 1980s Fiat. Also, the clever levers on the top of the front seats to move them forward from the rear are also gone. No spare wheel in our mk2.
The mk2 is undoubtedly a nicer car to drive, especially over long distances, but I don't think the interior will last as well as the mk1. It all smacks of a bit of cost cutting.
Just my two penn'orth.