It's one of the major UI decisions Apple may have to abandon later on.
Remember, the whole idea of the iPhone is not to be a super configurable PDA, but to be easy for anybody off the street to use. That means not bothering people with options.
It made sense with just a few apps to have all the settings in one place. This also means each app doesn't have to use up their screen with its own Options menu, like other phones.
However, once you have dozens of apps, and each one has all its options buried in the Settings menu, things might get a little difficult to find in a hurry.
Of course, that's exactly the kind of problem that all other phones with lots of programs have... either you make each app simple but difficult to modify, or you have lots of menus.