Now that the App Store has launched various developers are talking about the iPhone's capabilities as a gaming machine. Gizmodo paraphrases a developer from EA as saying: "On a scale of the three, it's in between the DS and the PSP, but sliding more towards the PSP." Over at Kotaku they have SEGA of America president Simon Jeffery saying that the iPhone is about on a par with the old Sega Dreamcast.
On the downside, control remains a bit of an issue. The EA developer compared the iPhone's accelerometer to "a loose analog stick" with lots of "random data" that has to be smoothed out. In any case, I think it is impressive to hear developers talk about how powerful the iPhone really is. This naturally gives good reason to hope for even more impressive games as developers get more comfortable with the device and its capabilities.