Pogue's review in the NYT had a slideshow on the iPhone's camera. What were his findings? Well, if there's plenty of light and little to no movement, the iPhone's cam works wonders. If you're in the dark or the subject is in motion (even you're outdoors), pictures turn out blurry. Seems pretty similar to other cellphone cameras to us.
Yes, the camera is limited, but capable of suprisingly decent results if the lighting is OK - or maybe I've just been living under a rock for the last 5 years wrt cameraphones :-)
I've been keeping track of some of my iPhone pics on flickr:
Capable of surprisingly good pics in bright light.
Poor in low light conditions.
Not tolerant of subject movement.
Don't mix light temperatures - only give it one kind of light to figure out the white balance.
Make sure main subject occupies most of frame.
High shutter lag.
Keep a copy of Photoshop Elements (or your favorite alternative around) - you'll need it to adjust levels.
Camera proximity to corner of phone - my stupid finger keeps getting in the pic :-)