Chris demoed the app extensively on his own site and having seen it in person, it is really impressive. Even with the crappy 3G signal we had on our trip to Cupertino, the stations streamed in at nice quality and there was an option to buy a track or album directly from iTunes. XM and Sirius both offer some great stations for talk radio and sports fans, and to me, that's where these types of streaming apps really shine.
Pandora and Last.fm aren't the only streaming radio services around, AOL's SHOUTcast Radio [iTunes link] app debuted in the App Store a few weeks ago and it'll stream your favorite SHOUTcast stations in up to 128k streams (go to Settings on your iPhone, select SHOUTcast and select "allow high-bit streams"), favorite radio stations, search for artists (though the currently-playing artists is a bit delayed) and peruse the extensive SHOUTcast index.
Another recent App Store entry is the official Slacker Radio [iTunes link] app. Slacker Radio is sort of like Pandora or Last.fm, in that you can listen to artist or genre specific stations, but I find that it is better, both in finding similar artists and in some of the pre-programmed stations. Slacker sells a portable device that downloads content directly to a player, so that you can play back tunes whether you are in WiFi range or not. The Slacker BlackBerry app will also "cache" radio stations so that they can be played back when not in range, but the iPhone apps needs WiFi or 3G/EDGE to play back tunes. That said, the playback quality is superb and the interface is top notch.
The interface is strikingly similar to the Slacker G2 portable device, but with nice iPhone specific touches like Cover Flow-esque skip selection using album art. You can also read a summary of an album or artist if it is available and buy a track directly from iTunes. If you want, it's easy to create your own custom radio stations based on a song or an artist.
Check out the gallery for more from Slacker Radio.
Of course, if you don't feel like downloading an app, you can always stream radio stations directly in Mobile Safari with the free moodio.fm site. Sign up for an account and mark your favorite stations for on-the-road music or talk wherever you have network access. This site is popular with Blackberry and other smartphone users but it works just as well on the iPhone or iPod touch.
With the growing proliferation of WiFi and 3G service, streaming radio apps really make the iPhone a dynamic music player. Even if you don't use your iPhone or iPod touch primarily as a music storage device (I know I use my old 5G iPod for most of my actual music storage), the quality of the streams and the vast track selection makes it possible to get excellent tuneage anywhere.