We've posted a couple of times about "virtual" GPS solutions for the iPhone that depend on cell tower identification, but now The partfoundry has announced the real deal. They will be offering a GPS dongle for the iPhone based on the SiRF Star III chipset. Needless to say this will require a jailbroken phone and the software "will be open source/community based." They've already got a prototype working (video embedded after the jump) that can report its location and send it to the Google Maps application.
No word yet on how the dongle will affect battery life. They're also working on the iPod touch, but support for it remains to be determined.
The partfoundary GPS module is apparently available for purchase now at $89 and is due to ship in February. Check out the prototype video after the jump.