When the herd of yellow Caterpillar tractors began to gnaw at the reddish clay hills near his 50-year-old Arlington pharmacy, Newton Oshinsky was convinced that Interstate Rte. 66 would be disastrous for his business.

Today as the four-lane expressway -- one of the nation's last freeways to cut into an urban area -- takes its final form, Oshinsky says he was wrong. "We're pleasantly surprised," said Oshinsky, whose Woodlawn Pharmacy overlooks a major I-66 interchange at Washington Boulevard and N. Glebe Road. "Business has improved because we're more visible. Now when people see our store they slow down instead of driving by."

Other Arlingtonians who fought completion of the 9.7-mile highway say they are more covinced than ever that the highway is proving to be "Mills Godwin's revenge." That's one of the nicknames critics gave the highway in honor of the former Virginia governor who ardently -- and successfully -- supported the road that will link the Capital Beltway with the Theodore Roosevelt Bridge and shave as much as 15 minutes off commuting time for many Northern Virginians.

An estimated 55,000 cars are expected to use I-66 each day, making it one of the major thoroughfares in the Washington area even though rush-hour traffic inside the Beltway will be restricted to car pools and Dulles International Airport traffic.

The $170 million highway, subject of 22 years of protests and lawsuits won't open until 1982. But nearly two years after construction began on the final 1.8-mile segment, the road is now being viewed with a mixture of cautious optimism and bitter resignation by those who challenged it.

Marty Simon, owner of Snyder's Hardware, a business established in 1927, says that two years of highway construction in front of his store has cost him $330,000 in lost sales.

"Cars have literally fallen into ditches trying to turn into our lot," said Simon, whose store is located near the Arlington-Falls Church border. "Our street was closed for a year, construction trucks woiuld regularly block our entrance and customers just oculdn't get here."

The 9.7-mile highway was conceived by Virginia highway planners in the 1950s in the belief that an eight-lane superhighway was the best way to meet the transportation needs of the Virginia suburbs. In Richmond, that belief persists despite the years of controversy. "This is a transportation corridor, a people mover, not a highway," Dale D. Harris, the state highway department's I-66 coordinator said the other day. He began planning I-66 more than 20 years ago, before a series of lawsuits and protests delayed construction.

A 1977 decision by then transportaiton secretary William T. Coleman and reaffirmed by his successor, Brock Adams, cleared the way for a smaller, four-lane I-66. Support by Fairfax County officials who wanted a quicker trip downtown and easier access to Dulles International Airport also was crucial to the federal approval.

Coleman's action was contingent on promises by Virginia officials that trucks be banned from the highway and that it be restricted to car pools at rush hour. State officials also promised never to expand the highway and they agreed to release funds for the completion of the Metro subway.

Last year Virginia Highway Commissioner Harold C. King promised skeptical Arlington officials that, when completed, I-66 "will be prettier than the George Washington Parkway." w

But there are Northern Virginia commuters -- many of them Arlington residents -- who still wince as they drive past the dust, massive concrete columns and treeless expanses that once were woods and bicycle paths.

"No one can deny that it's ugly," said Marianne Karydes, who led an anti-Interstate 66 coalition. "I drive up and down Lee Highway every morning and every night and I get angry. That feeling just doesn't go away," she said.

For others, resignation has replaced anger. "I-66 is here and I think people have become more or less resigned to it once the shock of the bulldozers and loss of trees wore off," said John Notarianni, chairman of an Arlington citizens committee that has been negotiating with the state about design features of the highway.

"The state has been pretty cooperative because it has decided to turn I-66 into a showcase," said Hank Leavitt, an assistant to the Arlington county manager. "Part of the problem in the past was the mentality of the old-line engineers in the highway department who were used to going through fields and laying asphalt, not building an urban freeway with a lot of citizen participation."

There are signs of increased development near several of the five Arlington interchanges planned for I-66. Multimillionaire Washington developer Oliver T. Carr is negotiating with officials of the B&O/C&0 railroad to develop a commercial and residential complex on a vacant 12-acre parcel of land located close to the Fairfax Drive-Glebe Road interchange.

Local real estate agents report tthat sales of homes near the highway have apparently picked up after an initial decline. "A year ago things were pretty sluggish but as construction progresses houses in these areas become easier to sell," said Peter Blann, an agent for Routh Robbins Realtors.

Blann said that sales prices in neighborhoods abutting the highway are "a bargain," because they are 10 percent lower than similar Arlington homes. "We get a lot of people who come here from freeway states so a highway in the backyard isn't a problem," Blann said.

Builder John Albrittain, who has two luxury town house projects planned or under construction close to I-66, agrees. Albrittain said that a 13-unit project of two-bedroom town house priced from $140,000 to $250,000 and located near I-66 in Rossslyn is virtually sold out before its scheduled September completion.

The town houses, designed for childless cuples and single adults, feature amenities such as swimming pools, rooftop sundecks and hot tubs.

"The highway is very convenient and I don't foresee any problems," Albrittain said, pointing to the success of Forest Hills, a luxury town house development located in South Arlington overlooking I-395.

Albrittain's town houses are located less than a quarter-mile from a planned $13 million landscaped deck that will cover I-66 in Rosslyn.

State and federal officials have approved the deck and a number of other landscaping features requested by the Arlington citizens committee.

Among the other concessins will be one-third fewer signs than Virginia engineers originally planned, and the undersides of bridges are being painted a neutral rust color, not the conspicuous blend of blue, green and brown first envisioned.

Karydes and other highway foes admit that plans for the deck look impressive.

"That's the only good thing we've gotten out of this" Karydes said. "We lost the way, and all the rest is reallyjust little skirmishes that don't mean much."