Yes! Anyone having problems differentiating image quality from resolution (mp #) this link helped me out a lot:
http://www.kenrockwell.com/tech/mpmyth.htm
As hinted at earlier, it is pretty likely that MP myth itself will become myth, eventually. It's easy to see that the current line of Nikon DSLR's using similarly sized APS-C sensors with vastly more resolution (up to 16 megapixels) outperform less dense sensors from earlier.
Eventually, technology paves the way for better. If Apple get ahold of parts that perform better than earlier parts, this is better for us. If those parts happen to have better sensor resolution as well, then great. Of course, for such incredibly dense sensors, the optics had better be decent otherwise, there is no such thing as 'sharp' or 'contrasty'.
In terms of density: the D7000 (nikon's current flagship enthusiast camera with a sensor of ~23,6 mm across) has sensor density that equates to ~36 megapixels on a 35 mm frame. The 5 megapixel iPhone 4 camera has a horizontal width of 5,68 mm, making it 0,16 the width of the 35mm camera film plane/sensor width.
I'm not great at maths, but the iPhone 4 current camera has a density that would translate to something around 100 megapixels if spread across a 35 mm format sensor at its current density per square mm values.
That is pretty demanding of a lens, especially how light gets in.
But as long as the technology allows for those pixels to absorb light well enough and the lens is good, we should be able to enjoy great photos from the iPhone next.
My D200 is far far far outplayed by my wife's D5000 in terms of sheer performance at the same ISO despite her camera packing 12 megapixels. The same (but to an acuter degree), could be said of the D7000 which simply destroys my D200 in every metric possible despite being much more packed with pixels.
New generations of sensors yield better results.