The slew of music recording / creation apps for the iPhone all share the same weakness. They rely on the internal microphone, and a recording quality microphone it is not. The Guitarbud from PRS Guitars gives you a direct input into your iDevice without taking away headphone capability.
It’s a simple, yet effective little cord. All that happens is the signal from your guitar (or bass, if you’re into that sort of thing) replaces the microphone input. Since it’s all analog, the Guitarbud works with pretty much any guitar-related app available.
$30 will get you 6 feet of cable that if you have any soldering know-how, could jury-rig up yourself. You’ll need either an iPhone with OS 3.0 or later, or a 2nd-gen iPod Touch running OS 3.0.