Spent some time playing around with one of these in the Apple Store today, here are some initial impressions.
First the bad. The keyboard is, unfortunately, every bit as much of a train wreck as I worried it would be. The lack of tactile feedback is a real problem, even if I eventually got to the point where I could use it accurately I don't think I could ever completely "trust" it - it's difficult to type a message quickly if you're constantly checking the screen to make sure it was recorded accurately.
Another big problem is entering very short words; there are too many cases where the mis-typed version actually turns out to be a perfectly valid word, "do," "go," ho," "no," "so," "to," and "yo" for example are very easy to mix up (ds and gthny all being clustered together) and since their system doesn't check for correct grammar there's really no way it can know which one you were trying to type.
This is bad enough with English, but if they ever put Pinyin input on this thing it'll be an absolute nightmare - 16 different two-letter syllables ending in 'a', 12 in 'e', etc... And no picnic for Zhuyin either, since the initials and finals in that are clustered together on opposite sides of the keyboard. In fact, because of the Pinyin issue I think if we ever did release a native version of PlecoDict for this we'd have to include some sort of stylus with it, there's just no way you're going to be able to look up Chinese efficiently using your thumbs alone.
I do have to wonder how Apple plans to market this in China given the difficulty of Pinyin input - absent some sort of proprietary keyboard layout, the best bet for them might be to just put a number pad on the lower half of the screen - cell users in China are already familiar with those and can type amazingly quickly on them. Or Apple may just skip the Chinese market for the first couple of generations, which for Pleco's purposes would actually be a very good thing
Some other points: the interface is very slick, though a bit limiting - when I got my first Pocket PC I spent a good day just fiddling around with control panels, loading third-party software, etc, but after about half an hour with the iPhone I think I'd pretty much run out of stuff to do. And what you can do generally takes too long - 4 or 5 taps to do something that would only take 1 or 2 on Palm. The lack of copy-and-paste (or even of easy delete options - doesn't seem to be a simple "clear" button in a lot of places where there should be) is annoying but you're not going to want to manipulate large quantities of text with one of these anyway.
The web browser is very solid, zooming feature is quite nice and almost makes up for the difficulty of tapping on links, though I'm still not sure if cramming a full-width web page onto a mobile screen is the best idea in general - I can get around Pleco.com in the ugly, narrowed version in Blazer on my TX a lot faster than I could get around it full-width on the iPhone. I'm sure a lot of websites will alter their designs to work with the iPhone (possibly even offering iPhone-specific versions), though, and that should improve matters significantly.
Overall impression: I like the fact that they're trying to improve the quality of smartphone UI, but I think they may have sacrificed too much functionality for the sake of aesthetics - like it or not, people are shifting more and more of their computer workload away from PCs and on to mobiles, and the feature-lacking iPhone is a step backwards on that front. The keyboard is such a functional disaster that I'm starting to think there may have been other reasons for it - nobody but Steve Jobs could get up and say with a straight face that this is actually *better* than the hardware keyboard on a BlackBerry/Treo/HTC-something-or-other, but given the number of patents held by Palm, RIM, et al on handheld keyboard designs I can easily imagine that Apple was either unable or unwilling to sign the necessary licenses and came up with the onscreen idea as a workaround.
On the business end, plenty of units still in stock, I have to give Apple some credit for doing a better job of ensuring adequate supplies than Microsoft/Sony/Nintendo did with their game console launches. The store (in SoHo) was surprisingly un-crowded, maybe half again as many people as would normally be there on a Saturday.
And my favorite iPhone joke of the day, taken from the Palm developer mailing list:
Q: How many iPhone software engineers does it take to screw in a lightbulb?
A: None, they never released a third party SDK.