the original statement was "A compass is pretty much a necessity for any turn-by-turn navigation applications." its not.
if you want to stand outside and spin in circles and watch the map rotate, thats up to you.
But the compass isn't needed. It could be a nice addition, but it isn't a required part of a functioning GPS unit. If I'm lost at Point A and I want to get to Point B the best route between Point A and Point B doesn't change depending on the cardinal direction I'm facing. I mean, if I'm driving from San Francisco to Los Angeles and I get lost in central California my GPS is still going to tell me to go South regardless of whether or not I'm facing NSEW at the time I ask my GPS for directions. If I want to get directions to the nearest Wal-Greens the iPhone would tell me to go one block North and one block West of my current position. None of that changes depending on what direction I'm facing when I ask for directions.
Lethal
You're missing the point. You said yourself - "it will tell me to go south". Ok. Now, which direction is south? You cannot get a turn-by-turn "turn left and follow the whatever" command without it knowing which way you are facing (assuming you are stationary and have just entered your route).
You can start driving in a random direction and the the GPS will correct you. But, it doesn't know a thing until you are moving. Turn-by-turn commands don't mean only when moving.
Ok. Yes. The GPS will lay out a path for you. A compass is not needed for that. It's not needed when you are moving. Now here's the situation: You're standing still. All the buildings look alike. You can't read the street signs. It's cloudy, so you can't see the sun. Which direction do you start walking? I don't know about you, but I don't want to walk half a block and find out I was going the wrong direction (GPS will need you to move a short distance, depending on how fast you are moving, to calculate a heading).
I think that about covers the turn-by-turn topic.
As for the iPhone needing a compass app? Again, why not, if the hardware is there? I don't think an outdoorsman would rely solely on the iPhone's compass (like, they would have a mechanical one, too), but wouldn't mind the utility.