That may not be the case anymore. I just saw a video shot on the new iphone 4S and was blown away. It's not up to the level of the Canon 5D just yet... and without the ability to add high quality lenses... but wow. The video, shot by Benjamin Dowie, looks pretty damn good.
A video shot on the iPhone 4S from Benjamin Dowie on Vimeo.
One could easily shoot a no-frills feature on the phone. Go for natural lighting when possible, get a small sound package... man, this is exciting.
I wish the iPhone had the ability to flip open with a qwerty keypad. I just can't type on the thing.