I don't yet have my own iPhone, I will be getting that in August. But since my wife has had hers (December) I've found more and more reasons to use it. The best one just might be geocaching.com's application.
The iPhone 3G has a built-in GPS receiver (GPSr), which I don't believe the first gen iPhone does (don't quote me on that). I certainly wouldn't use it to geocache, but it's accurate enough for car navigation or location-based services. The geocaching app can use the GPSr to find nearby caches. It will list them out by name and distance; clicking on one will give you more detail - size, description, logs, and hints. In other words, all standard fare you get on the website or as part of your .gpx downloads. You can also use the app to navigate to the cache, which will bring up a map (you can set whether you use Google Maps or Bing maps, for example) showing both your current location and the cache location. Or you can bring up a compass view - showing you direction and distance to where the cache is.
But the best feature, in my estimation, is that you can record your cache logs right from the phone. These are called field notes, and you can record found it/didn't find its and record a log. These are then submitted to your geocaching.com account to your field notes section. They don't post directly to the cache listing - you have to do that from the website. Not sure why they force another step, but still better than trying to figure out all the caches you found when, say, you're on vacation for a week and find a couple dozen.
The app also allows you to save cache descriptions for offline use. And this is a really nice feature of the app - it recognizes that people doing serious geocaching are probably not within distance of a cell phone network or Wifi, so the app is offline-friendly. You can't search while disconnected; however, you can still submit field notes (they are stored locally until you connect again).
This app will set you back $10. Considering you'll never had to download pocket queries again, it is a no-brainer companion to your geocaching toolkit.
The $25,000 question is whether you could realistically use only your iPhone for geocaching (assuming you pretty much do urban caches), and I think it would be a challenge. The GPS is just not accurate enough on the iPhone. But damn is it nice having a device able to pull down any nearby caches you want no matter where you are.
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