I've been pleased with the HDR function. I'd say that I keep about half of the photos it comes up with which is a pretty good ratio.
Ok, so every portrait studio I've ever been in was doing it wrong?
You'd think one of them would have figured that out by now!

Oh dear, you need to learn about photography. Studio flash is COMPLETELY different. It's defused, softened and correctly angled (and often multiple bulbs in sync) to prevent red eye, washed out skin tones, unflattering shadows which exaggerate facial features and a generally unnatural photo. And importantly, the iPhones flash also causes the background to
underexpose.
The flash on the iPhone (and all cameras really) SHOULD be avoided at all costs. There are some situations where is it impossible for an amateur to get an exposure of the subject without flash if they dont know what the manual settings (shutter speed, aperture and ISO) do, or have access to them at all. Flash allows an amateur to get a
photo 99% of the time, but it does not mean it will be a great photo. Normally the ISO should be increased and shutter speed be decreased as much as possible before resorting to flash.
As the iPhone does not give you any control over these settings and has very poor ISO performance (and a low dynamic range), HDR processing can be used to compensate for these limitations in certain situations before deploying the flash. Flash would be useless for landscape pictures anyway. There are times in very dark/night situations where flash will be needed whatever though.
FYI, the way to get the best possible natural and organic portrait shot from a camera like the iPhone 4 (which is bloody good for a camera phone, and the first real compact point-and-shoot replacement i have used) is to take them outside on a
cloudy day. It can also really help to get them to hold a crumpled piece of kitchen foil under their face just out of shot if your in the mood and have it to hand

That not always possible, but with a bit of thought and knowledge great photo can be achieved far more often.
Anyway, there is two different types of HDR - corrective and creative. Apple have the corrective side monopolised now, so what apps like HDR need to do now is work on the creative side and improve - starting with the ability to blend more than 2 exposures. I would like to see Pro HDR go up to 8 shots. Some really cool and beautiful HDR uses as many as 15. They might not look natural, but they can be amazing works of art -
http://www.smashingmagazine.com/2008/03/10/35-fantastic-hdr-pictures/ and
http://designerfied.com/10-amazing-photos-of-winter.html for a few quick googled examples of great CREATIVE HDR. I would love to take photos
almost as good as this on my iPhone when i dont have my SLR, no reason its not possible
