A video iPhone with a magnetometer would allow for exciting new application possibilities, according to a MacRumors report.Live video footage could be combined with computer graphics to create an Augmented Reality application. Game researcher Blair MacIntyre demonstrates what this might look like in a demo video below...
MacRumors suggests that the inclusion of a magnetometer (Digital Compass) could allow for determine your absolute position. You could use this to pointi your iPhone's camera at a building and have it tell you what building it is by overlaying data on top of the image. A similar application might show information about stars and constellations simply by pointing your iPhone towards the sky.
A more complex sensor system could also make the mockup application below a reality as well...
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