This video walkthrough of MagicPad, a rich text editor app that is still pending acceptance into the App Store, is notable for showing the first working copy and paste framework on the iPhone (at the 1:00 mark). Of course, SDK limitations keep the functionality quarantined within MagicPad itself, but its developers, Proximi, hope to use it as a case study for pushing forward one of the iPhone software's most wanted features. That is, if Apple says it's OK.
By the looks of it, it works fairly well, using the magnifying glass tool to drag out a selection, although it looks like it's difficult to place the cursor correctly since you're unable to drag through a line of text without making a selection.
Proximi is planning on releasing its own proof-of-concept videos which further illustrate how their method could be used system-wide (how they will do that under the developer NDA is unkown). But first, the truly interesting question is whether MagicPad will get the stamp of approval from Apple and make it out to the App Store. They've said they don't care, but whether they let a 3rd party app tease what's in such high demand will be the true test. It looks like it's using an unorthodox email system (CAPTCHA??) to email notes as well, which probably lessens its chances. [Apple iPhone Apps]