AT&T has been working on a research project based on the WATSON speech recognition engine. The project, named Speech Mashups, is a web service that is only activated when the iPhone (or any other modern phone) connects to it. So that means that the actual voice recognition is happening on a remote server and not the phone itself; there is no need to install a plug-in or any other software on the phone.
So far the only one working prototype is a mobile version of the YellowPages website. There is a video on Apple Insider showing a demonstration of it working.
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