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How can I make it work using the headphone jack?
Should I use the microphone idea? The rotation for the wheels is produced by an electric motor, so there would not be as much sound coming as with an internal combustion engine.
 
Why not just send the raw data encoded into highs and lows over the microphone in jack?

You mean frequencies, as in FSK? That's been done.

However the input impedance and gain of the mic input isn't documented by Apple. So you'd probably have to do a fair bit of experimentation if you want to use an audio cable as opposed to the mic.
 
How can I make it work using the headphone jack?.

Figure out suitable audio levels and input impedances.
Write some iPhone audio recording/input code (RemoteIO or Audio Queues).
Write some DSP code for demodulation (FSK, BPSK, etc.)
Write some data comm code for ECC, framing, unpacking, etc.
Format your data for display.
Wrap all the above up in a Cocoa Touch app with some UILabels or textfields, etc.

Build some embedded hardware (dsPIC, Arduino, etc.) to do the inverse of all the above, plus appropriate sensors, and connect to your motor.

Wire it all up and test.
 
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