I'm about due for an upgrade to my first generation iPhone, and a sweet camera would help seal the deal. That's the rumor going around (more or less unrelated to the other set of rumors we heard today, though I probably wouldn't turn down a higher-resolution iPhone with better camera included) according to a few places, which seem to stem from a company named Omnivision Technologies. They're expecting to not only see an increase in production of iPhone CMOS image sensor parts from 20 million to over 40 million in 2010, but they also say they've landed a deal to put together 5-megapixel CIS pieces for a new version of the iPhone.
Take this with the requisite grain of salt, of course -- we've expected cameras in some of Apple's devices before, and a few of us were disappointed. But it's not a big stretch to think that if Apple does release a new version of the iPhone as expected this year (be it a normal handheld or a larger tablet product), the camera in there will be able to take nicer video and better pictures than before.