Actually, I would recommend the "Machete Mash-up".
Watch in this order:
IV: A New Hope
V: Empire Strikes Back
II: Attack of the clones
III: Revenge of the Sith
VI: Return of The Jedi
Skip I: The Phantom Menace all together.
It helps preserve the surprise factor in many instances and sets up nicely Luke's struggle. Huge bonus... Jar Jar Binks gets less than a dozen lines.
Interesting tidbit to make II much less painful to watch: There is a rumour that Obi Wan and Padme might have had some fling early on, or something but are downplaying it.
Edit: But really, you don't even need to bother with I, II or II. Its more there for back story more than anything really.
As long as you watch IV, V and VI- that's integral.