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From the looks of several photos here, it appears as if the iPhone camera is extremely sensitive to how clean the lens is (and I don't mean rub on your shirt clean, I mean photographic lens cleaner clean), glare on the lens (one should shade it from any direct light with something), and absolute light level (noisy sensor).
 
If you jailbreak it, you CAN zoom in

It's not zooming in, it's simply cropping a section of the photo out so it looks closer. You could do the exact same thing in iPhoto or Photoshop after the photo has been taken.
 
San Juan del Sur, Nicaragua
Central America

I fish the Bahamas alot, gotta love being out on the water. There's nothing like it.:D
P1010017-2-1.jpg

Just took this last week, for a posting on watchforums. I love the camera on the iphone, lighting and a steady hand makes a big difference though.
 
I use the iPhone as my digital camera for traveling etc. I think it is great. In the future models will it be great to up the lens quality a bit, more mega pixels, focus in the software and zoom etc? Sure, but I love it for what it is now. It has saved me at least a couple hundred dollars from not getting a new digital camera so I am happy :)
 
Big Sur

This is about the best I could get from the iPhone. Of course it IS Big Sur, so it naturally looks "good".

I wish Apple had used a higher resolution lens. It also seems to have problems in lower light, WAY too slow.

bigsur.jpg
 
Not Sure if this photo counts

Went to NYC and took several photos from Liberty Island with my iPhone 3G and stitched them all together with Photoshop. I had to reduce the image 33% so the photo would fall under the max file size for the website.
 

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This is about the best I could get from the iPhone. Of course it IS Big Sur, so it naturally looks "good".

I wish Apple had used a higher resolution lens. It also seems to have problems in lower light, WAY too slow.

bigsur.jpg

All those pinky-blue dots in your picture is camera noise and low resolution ( 2mp ).

So I don't think higher resolution lens would help much. ( i believe you mean better quality lens )

What Apple need is a better image sensor for the iPhone 3G...
 
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