Without this button I needed to first label the message and then archive it. Now it is one action. For anyone that uses labels in any way like folders, this was an awesome improvement.
The one 'nice' thing about not having it was that it forced me to create filters to automatically label all my email.
I actually really like the new label functionality. Multi-select and autocomplete textbox is very nice. However the problem I see there is now every action looks the same. Before you had drop downs, and it made it easy to find what you wanted to do. Hence my too many buttons comment.
(I disagree, I think the buttons are good because they allow both fast keyboard access in addition to mouse friendliness. This behaviour differs from regular buttons and it seems reasonable for them to look different.)
This works visually, but I think it really tramples on a lot of UI metaphor.
This makes sense in the [Save] _Cancel_ case at least, I'm sure there are apps that aren't consistent though.
A blog post with some ideas on the matter: http://www.svennerberg.com/2008/09/the-use-of-buttons-in-web...
(further bringing to attention that there are now too many buttons)