Next-generation iPhones likely to focus on internal improvements.
'Layar' Shows Augmented Reality Possibilities on iPhone 3G S
Layar shows you what is around you by displaying realtime digital information on top of reality through the camera of the mobile phone. Just flip through the directory of layers and find ATM's, bars, houses for sale, hotels and other cool stuff around you.
The app accomplishes this through the use of the Compass, camera and GPS embedded within the phone. The developer's video shows it running:
The app is first available for the Android devices but they are working hard on porting it to other platforms "with a prime focus on the iPhone 3G S.". The iPhone 3G S is the first Apple iPhone to contain a digital compass which is required for such applications.