It is a 3V device. You can get it to work with an Arduino running at 5v. It’s not a “good” thing to do as you’ll be out of tolerance, but if you pull up the I2C lines to the Arduino logic rail, you’ll probably get away with this logic level mismatch for a bit, but it’s not advisable for anything “production.” There are alternatives, such as the Spark Fun logic level converter (http://bit.ly/3edAb0) or some of the Arduino variants that run at 3.3v (the “Pro” editions such as http://bit.ly/eZeT2).

The I2C stuff is pretty straight forward once you get around the handful of “gotchas” – including the addressing and so forth. It helps if you have one of these inexpensive USB logic analyzers or a scope nearby to watch the bits and debug some of the initial kinks. It really is worth the $150 or so for a USB logic analyzer, if only because it’ll save you time and stress!

I review one here: http://www.nearfuturelaboratory.com/2008/05/29/logical-analysis/

And here: http://www.nearfuturelaboratory.com/2008/10/24/a-new-logic-analyzer-and-an-i2c-compass/

Julian