Augmented reality on cellphones is not new, but given the screen size of the iPhone, this application by ARToolWorks looks promising for both gaming and location-based applications (imagine seeing information about a place, or the live 3D reconstruction of the Roman Coliseum, by just pointing your iPhone camera). Unfortunately, given Apple's SDK limitations, we are not going to see this in the App Store anytime soon:

It's running slowly, but once Apple releases a video [API for the iPhone] SDK, performance should get to 20-30 frames/second. We've all seen the awesome 3D games that can run on the iPhone, so fast AR applications will also be possible in the future, with all that multi-touch goodness thrown in as well.

Looking at the demo, and knowing the amount of coding it took for the video alone, it may slow but it feels very promising. [Artoolworks ? Thanks Mark]