I've owned both, and went the opposite way. Yes, the 1.8G is good up close at wide stops -- but at longer distances and/or stopped down a little, you'll need to crop significantly. It's not just a matter of vignetting -- the corners are never sharp.
It will never be remotely like a general purpose 35mm lens on FX. Because of that, I don't think it can "seriously compete on an FX body."
As a general purpose 35mm on FX I agree. It's not great. But as a 35mm shot in low light at 1.8 with subjects shot in the center of the frame, it makes an excellent low light lens to which the next closest equivalent is the 35 1.4 G costing nearly 7 times over!
If Nikon releases an FX 35 f2 AFS, I'll probably switch, but until then the 35 DX does a pretty good job for the price.
Picked up the 35 f/1.8 G today, just took a few pics on my D700. Initial impression is it is certainly very sharp in center wide open. If subject is not real close it does have a lot of distortion and it certainly does vignette, the closer you are the less it shows. I will keep it if I decide to keep the D5100 I picked up as it is a winner for that small light package. Otherwise I don't see the advantage to get rid of my 35 f/2 as my copy is almost as sharp @ f/2 and does not vignette of have the distortion on more distant subjects.. Below is a quick sample of each @ f/2
35 f/1.8 shot @ f/2
35 f/2 shot @ f/2
here is a comparison of all three nikon 35mm AF lenses on both DX and FX