Adobe released a free iPhone app that ties into their Photoshop.com web service...

Photoshop.com Mobile 1.0.0.209 (iTunes App Store)

Both the app and web service lets you make quick simple changes to your photos. The app lets you easily upload photos from itself to web service. Photoshop.com's free service gives you 2GB of storage. You can also buy additional storage space buy paying an annual fee from $19.99 per year for 20GB storage to $129.99 per year for 100GB.

Photos modified using Photoshop.com Mobile are saved back to the iPhone's photo album as a new photo. So, you don't have to worry about overwriting an existing photo. Photo manipulation features are very basic but frequently used ones such as crop, rotate, and various color adjustments. It is not going to replace Photoshop CS4 or even Photoshop Elements. There is only one disappointment for me with this app. The "Sketch" feature is just a simple filter than changes the photo to make it look blockier. If you want to actually draw over a photo, you should get the also free...

Autodesk SketchBook MobileX (iTunes App Store)

...that I tried out last week (and liked a lot). Photoshop Mobile will probably stay on my iPhone for a while. But, I'm not sure if it will get much use.

Photoshop.com