This is really wild: what you see above is an example of "viral music" -- it's part of an upcoming music festival that's taking place in Sweden, and it features a circle of iPhones that are both listening to and playing a very abstract kind of "music." Each one is picking up audio from its environment, then running it through a series of software filters to make it sound more musical, and finally playing it back in a rhythm. As each iPhone is picking up the tune from the other iPhones it's playing it back through the same filters, and so on and so forth. All while the software is "judging" each "cell" of sound, to see if it's interesting or loud enough or so forth, and cells will live or die based on that criteria -- in essence, a musical organism.
Like I said, wild. That program is called the "Bacterial Orchestra -- Public Epidemic No. 1," and it sounds like the app will be available on the iPhone soon as well. Of course, you'll have to have a bunch of iPhones with the app in one place for it to work the way it's designed, but at least there's good video of it.
There's also good video of the iPhone OScestra, a group of musicians run by Smule's Ge Wang, who use apps like their Leaf Trombone and the Ocarina to churn out something an interesting composition, and who performed at London's Open Hack convention last week. I'm not sure whether it's just so much power in such a tiny machine or the innovative multitouch interface, but the iPhone is turning out to be quite an instrument, in many different ways.