This looks cool in concept, but knowing what I know about the iPhone and about World of Warcraft (big fan and owner of both), I ask myself - why?
Would people really enjoy an experience like this, in light of lag, control issues, battery issues, etc.? To the point that Blizzard would spend development on it? I know that I'm a cynic, but I can go ahead and say that I wouldn't.
I'd much rather see something akin to Capsuleer for the iPhone, and the way it works for EvE Online. Something that integrates all of the API data available: arena and armory data, calendar data, item database, front page news, popular blog/strat sites on an integrated RSS feed, and so on.
Maybe even break a few new walls and give Inventory, Auction House, Mail, and Tradeskill access, as long as the character logs out in an Inn. That's what I'd like to see. But a full client version of WoW, "playable" on the iPhone? I'll pass thank you.