To repeat something I said in another thread, which bears repeating here:
The controversy is stemming from several issues:
1. Apple's SDK license prohibits the development of "turn-by-turn" navigation applications. At this time, it is not known the exact reasons; but some are speculating that this means you cannot develop turn-by-turn applications that use the Google Maps data, because of agreements that Google Maps almost certainly has with the sources of the map data, which themselves are licensed to turn-by-turn navigation providers. It could also be because of various agreements with wireless carriers, many of whom charge more for such services. It could also be other reasons. It could simply be preemptive. It could be because Apple has its own plans.
2. The fact that a reviewer, David Pogue, said "According to Apple, the iPhone’s G.P.S. antenna is much too small to emulate the turn-by-turn navigation of a G.P.S. unit for a vehicle, for example." Before anyone says, "Where did Apple say this?!?!" it was almost certainly directly told to him by his press handler at Apple. Do you think that they just toss iPhone 3Gs out to the very first reviewers and say, "Knock yourselves out?" No, they have press kits, and direct access to media relations people at Apple who will answer questions.
Note that the antenna issue with respect to turn-by-turn navigation use IN A VEHICLE could apply to nearly any handset. Inside a vehicle, it's pretty hard for telephone handsets with GPS to get as good a fix as dedicated devices with larger — or external — GPS antennas.
Turn-by-turn navigation for vehicle use is a LOT more complex than just telling you what the next turn is...it maps a complete route, remaps if an error or missed turn occurs, has provisions for one way streets, offramps, complex intersections, and other roadway features, usually is able to speak the instructions, and is in a completely different ballpark than simply showing where someone is on a map. Sure, applications could be made for the iPhone that do this. Right now, what the iPhone does is good for simple, accurate location finding, walking around outdoors, etc.
It remains to be seen whether in-car solutions or dedicated "hiking/geocaching" type solutions will be able to be developed.
So the bottom line is that we'll just have to wait and see.