As it turns out David Cann's iChat for iPhone (iPhone Link) is the only instant messaging application that can be used on the iPhone, though its not without its bugs. I'm not sure if David made changes to his iPhoneChat site since Friday, but it was not working on the iPhone when I first tried it.
Keeping focus on the IM text field and scrolling back to see what has been said is a bit awkward, and the session is limited to 10 minutes, but it works. Another bug is that tap-drag motions aren't sent by the iPhone, so if your buddy list exceeds the space of 1 page on the iPhone, you can't scroll down to see the rest.
Meebo.com is another popular Web IM client. While their site appears to work initially, iPhone users are stuck unable to actually send messages. There is no "submit" button for the IM text fields, and the iPhone won't generate one through the standard on screen keyboard.