I've wondered before just how a fighting game on the iPhone would work, and now I'm going to find out: Capcom has announced that they're releasing the latest Street Fighter game (they're up to IV now) on the iPhone. You can see how it works over at IGN -- there's a virtual joystiq on one side, and four virtual buttons on the other. I have no idea how it will actually work in practice; it certainly seems like your thumbs would cover up both your character and the enemy while fighting, and that's assuming that your thumb has the dexterity to know which buttons you're pushing without tactile feedback. But we'll see -- Capcom says the game will have a large number of fighters to choose from (though probably not as much as the full retail game), and the ability to play multiplayer via Bluetooth.
One other interesting note on this one: Street Fighter IV has only been released on the major consoles, and the iPhone will be the game's first handheld relase (that we know of so far). This could be Capcom's experiment -- if they can release it on the iPhone before putting a port out on the DS or PSP, and see some success, we could see other larger developers releasing ports earlier (or maybe even exclusively) on the iPhone in the future. But let's not count our hadouken before it's completed -- first we have to see if a game like this will even work on Apple's little handheld touchscreen.