This is so cool! In my most humble opinion, its this type of application that makes the iPhone or iTouch a viable option to OLPC. Forget about laptops. Handheld devices will be what finally makes the breakthrough. But of course, in many schools, they will be banded and labled as "distractions" from the goals of the school. That always makes me laugh ;-)
I'll get off my platform and simply say this...when you tilt the iPhone the landscape tilts into 3D view. Watch the video. It is just so darn cool. I wonder how long before the G1 has that?
Oh! The bad news. I just tried downloading it and the iTunes app store download system was down...FAIL!!!