I have used Henna a few times, mostly for it's conditioning properties(which weren't fabulous) and to give my hair more body(worked ok for this, but coloring does it better). I haven't done this in years and there may be better options out there. I saw one at a natural foods store recently that looked promising, however, if you are looking for color, I would stick with regular hair color. I prefer the "natural" route whenever possible, but colored hair isnt natural so we might as well use the chemicals
Also, I read somewhere you can't color over hennaed (is that a work?) hair and I believe visa versa, so if you wanted to switch back to the other method you would have to grow it out completely.
I used to do it a lot when I was in hs; I liked the reddish shade it gave to my hair and the fact that it made it soft.
The downside: as sage said, it's very difficult to change your color once you have done henna; you have to wait for hair to grow back, and the color never really fades away. If you choose a blondier shade, it can turn green in some cases (happened to a friend of mine who sat in the sun while waiting for the thing to work). You have to keep it forever on your head (like 90-120 minutes) And I hate the smell
But, it was a very hip and trendy thing to do. And, as sage said, may be now they came up with some improuvements