Of course this will only work on devices that support multitasking on iOS 4, which means the iPhone 3GS and the new iPhone 4 available later this week.
As I write this, Apple has just delivered the OS update for current iPhones, so those with the iPhone 3GS are good to go. This update will make a whole lot of people very happy. I tried out the 'music in the background' feature with the golden master of iOS 4, and it worked like a charm. Pandora did ask me to re-enter my password. Your mileage may vary on that one.
Pandora! Grab it.