I agree with the OP... the video is impressive, and the audio and video in the videos taken is superior to my old beater Canon A620's videos (7.1 MP). Camera though... still not even half as good as my old Olympus 2.1 MP camera. Outdoors, with bright sunlight, seems to be the only way to get reasonable photos with the iPhone. Indoors, or outdoors with moderate lighting gave pretty grainy photos that lacked detail and if there was any movement by the subjects they were blurred. So I'll still be lugging around my Canon Rebel XSi 😉
That said, it's good for a phone camera for sure, and the auto white balance is a great feature. You'll always have it on you to snap shots of the unexpected, at ok quality (when you shrink the photo to 1/2 the size), which is a nice thing to have. But we didn't buy the iPhone for the camera...