I was told that by a few people too... that it would keep them fuller longer, sleep better, etc, but that truly is just a myth. My DD was sleeping 8 hour stretches at 2 months and never had cereal, and other babies who eat cereal still wake 3-4 times in the night. A fully belly is required to keep a baby from waking from hunger, but that belly can be full of formula or milk.
Some of the problems associated with early introduction of cereal:
-tough on their digestive system, resulting in more gassiness, stomach pains, etc.
-increased risk of food allergies and intolerances
-overly fast weight gain
-choking, since cereal makes the bottle much much thicker
Lastly, when you do intro cereal, you want to do it when baby can sit up and take a spoon so that he/she can associate the spoon with eating, something that is different from the bottle.
I started my DD on rice cereal just under 5 months, at the pediatrician's "go ahead", and she still had difficulty with gas and pain... so we stopped for 2 weeks and then tried again with oatmeal, which she tolerated no problem.