Apple's annual developer conference in San Francisco.
Demo of Digital Compass Used in an iPhone App
AirCoaster 3D is an existing application that allows users to design and ride 3D roller coasters on their iPhones and iPod touches. They've since posted a video of a prototype version that takes advantage of the iPhone 3GS's digital compass:
This version of the app allows the user to move the iPhone around in real life to obtain a different view out of the in-app roller coaster. This feature is expected to come in a future update to the application.
App Store Link: Air Coaster, $0.99 (no compass support in current version)