The Arduino (or ATMega168 chip) seems to accept 3.3v TTL serial signals just fine and the FON router I'm using reads Arduino's 5v signals just fine too. I haven't noticed any problems using both directly but it's probably better to have a proper converter like in your circuit.
I'm using OpenWRT and the ATMega168 with Arduino firmware to monitor and control a hydroponics setup for growing plants. My code is here: GitHub - nemik/arduinoponics: Arduino code to control a pump for hydroponics purposes.
I initially tried to use DD-WRT but found OpenWRT to be much easier to use and modify, plus very lightweight. Their LuCi web-admin pages are powered by a Lua-based MVC framework that I found very easy to extend. Plus Lua is very lightweight and I use it as a 'daemon' script to send and receive over serial from the Arduino. I have some pictures of it here too: hydroponics | Flickr
The software is pretty hackish and very specific to my needs though. Something more generic like Firmata would be more appropriate for a general prototyping solution.