Debacle Software has just released Pano (App Store link), an iPhone app that creates panoramic pictures from multiple iPhone photos -- up to four in one panorama.
Making panoramas is quite simple. You begin by launching the app on the iPhone, at which time you're asked to take your first picture. Pano prompts you to use or retake the photo, and if you choose to use it, you're given the opportunity to take the second picture. Pano overlays a transparent version of the rightmost portion of the previous picture over the left hand side of the image (see below), providing a guide for aligning the pictures. (Sorry about the ringer icon -- I bumped the ringer volume button while making the screenshot)
The process is repeated for up to four photos. If you take three shots and don't want to take a fourth, you can cancel, at which time you're given the option to quit, continue taking pictures, or make the panorama (see below). The last step displays a "merging" progress bar, during which time Pano's proprietary process is stitching the photos together.
The final panorama is placed into the iPhone Photos library, where it can be emailed or synced with iPhoto. Pano costs $2.99, well worth the price for what you get.