Improved gameplay and roleplaying makes up for the poor, confusing story. It doesn't live up to the first, but its good.
The graphics aren't improved to any great extent, which is the only thing that made KOTOR worse than a modern RPG. Still, the action sequences in movies, the music, the beautiful worlds, and the Star Wars feel of design makes this game graphically pleasing, though not incredible.
The combat and gameplay definitely improved from the first KOTOR. Combat is more varied, there are less useless weapons and skills, and interactions between your character and his companions changes the game much more than in the original.
Unfortunately, the game is lacking in a good plot. To start, it seems like they tried to satisfy both endings of the original game somehow, which is just a bad idea. Rather than having a clear backstory to what happened in the first game, all of the characters speak vaguely and this hurts the sequel a lot (they even seem unable to decide Revan's gender). A lot of the plot elements are confusing, and the ending of the game left it incomplete, and myself wondering what the heck was going on. Lots of story threads are either inadequate or unfinished.
The characters are somewhat likeable, but I would take Bastila and Carth over some wanna-be hipster and a creepy old lady any day. Unlike the first game, which featured a major plot twist and a story that sucked you in, I could care less about the story of The Sith Lords. They don't even manage to set a main villain - you would think it would be the Sith Lords, or one of the Sith Lords, but the final boss is not even someone you have come to despise at all. The Light Side and Dark Side endings are almost indentical, as opposed to the first one.
The lack of a digital download is also annoying, since I've always hated having to run a game from a disc. But this is the least of your worries. A few errors persist in Vista or Windows 7, but they're negligible at best.
All in all, The Sith Lords is certainly worth the money at least for the improved gameplay, but if you're looking for an enticing, immersive story then just replay the first one.