I have never played Mass Effect, but I hear that Mass Effect 2 is great.
Do I need to play the first to understand the second? Will I be lost?
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They do a pretty good job of introducing the world and story in ME2, if you have not played ME1. That being said, I feel that picking up ME1 for $20 is well worth it and will definitely enhance your ME2 experience.
For example. certain characters will not appear in ME2 if you did not play ME1. Make sure you get ME1 and ME2 on the same platform too. You can't transfer saves from different platforms.
ME2 has an independent storyline that can be understood without ME1, though many events will lack context and be somewhat less compelling as a result. The biggest problem with not importing a ME1 save game is that if you create a character in ME2 directly, the history assumes the least happy endings for all of the major events in ME1. You won't really have much trouble understanding the game, but it will be a somewhat more depressing game. On the other hand, if you don't know the story to begin with, you might not realize it. If you like playing the evil asshat, your experience may be essentially unchanged.
Getting all of the happy endings requires not only that you import a ME1 game, but that you play through ME1 with a nearly capped charm/intimidate rank (a perfect ending at Noveria requires 5 out of 12, the happy ending at Feros requires 10 points out of 12 -- the only scene that requires 12 is the awesome resolution of the Saren plotline, but that has no effect on ME2). You'll also want to make a point of doing Wrex's character quest before Virmire.
Completing the ME1 mineral scanning quest will give you additional starting resources in ME2. Completing the "Rich" Accomplishment will give you additional starting funds. High ME1 Paragon/Renegade scores will also translate into a starting bonus to ME2 Paragon/Renegade scores, making it easier to get good plot endings in ME2. A high level in ME1 will translate into starting XP in ME2, though if you plan on buying the DLC quests, there is probably enough XP in the game to hit L30 without it (without DLC, you'll end at around 26 with no imported character after doing all side quests, IIRC).
Two things that might help in the decision making process:
1) ME2 will, as Elpezmuerto said, transfer your save file from one game to another, enriching your playthrough in ME2.
2) Mass Effect is a trilogy, as stated by EA and Bioware. Essentially, you are short-changing yourself a third of the experience by jumping straight into ME2.
I would strongly recommend you to do so. I played ME2 without playing the original version and I didn't understand anything. Sure, I understood what it was all about but you won't be able to put certain people and conversations in context.
Also it teaches you how to play the game. ME2 assumes certain things or doesn't make some things very clear. For example, I didn't know you could mine planets for minerals until one of the loading hints told me about it! Plus I didn't fully understand how to order your squad to modify their attack on the battle field. Sure it's all there when you bring up the wheel but its not very evident what to do. This lack of clarity is what I hated about ME2. You have to read the in game user guide (The box didn't even come with a grain of useful information in terms of printed material.
Tech cool down? Anyone?
So... play ME1 first.