I immediately imagined the possibility for a multiplayer tabletop strategy game, along the lines of Warhammer 40.000, in which there is no board and no pieces, just players. Bring the game with you, when you meet up with your opponent, have a quick round, wherever you are. I was going to say, that all you’ll need is a flat surface; but you obviously don’t even need that, when everything is virtual.
Another thing struck me. Since the iPhone knows where it is, which way it’s pointing and how it’s tilting, it should theoretically be possible for it to apply that data-over-time to a video stream and in essence create Google Streetview-like spheres; employing some clever math, no doubt.
Exciting stuff, though of course not the first example of augmented reality on the iPhone.