Just had a demonstration of wikitude for Google G1, held at the re:publica in Berlin.
The session disclosed thats better to wait for the next generation iPhone (which probably has a compass) than upgrade now to 3G (currently I'm using the 1st generation)
The compass is the main hardware gadget missing in iPhone and present in Googles Android-Phone G1.
Why do you need a compass when you have GPS? The answer is wikitude, an augmented reality application, currently available only for G1.
With wikitude, you use the buildin camera as a viewfinder; the wikitude application puts overlays on the view filled with pointers to POIs. Shortly spoken: wikitude puts the pins of google maps upon your cameras view. The data itself comes from wikipedia, panoramio and qype.
For this app, the current position is needed (GPS), as well as the direction of view (compass). Last but not least, the gravity sensor is used to determine wether your looking at the sky or at the floor (this will become evident in an area with large gradient - in austria for example, where the developers of wikitude are living.)
When having seen this cool app you will agree: POIs on maps are boring 2008
There are some aspects which may become critical:
Level of detail / collision detection
POIs behind behind large buildings will shine through. This will become annoying in flat areas with a lot of POIs - in Berlin, for example.
Missing height in geolocations
Particulary in cities with skyscrapers, POIs will be stacked. When standing in front of such a POI-bundle, you would like to have them meaningful separated in height - instead of cluttering them on the sideway.