I feel like latency in a way needs to be at 0. With my Sony Xperia X10, with the haptic feedback i could have typed 4 or 5 characters while the screen/keyboard animations caught up. I type a lot of emails on my phone so I get very fast, too fast for the software to handle :)
I don't think its the gaps between the keys as much as its how the software handles touch. I think I remember part of the first iPhone keynote explaining how this is done.