GarageBand for iPhone and iPod touch
Apple has released an update to GarageBand for iOS that now enables it to run on iPhones and iPod touch devices.
I've played with it on the iPad and it's a lot of fun and very intuitive to use. The iPhone screen seems a bit small to be able to play around with it like that but you can't beat the portability of having a multi-track recorder in your pocket.
GarageBand for iOS is now a universal app so if you bought it on the iPad you should be able to update and get the iPhone version for free.