While I was browsing the app store, I saw that there is now an iPhone version of Garage Band. Garage Band is a Digital Audio Workstation program (a multitrack recorder, plus a few extras).
I've been trying it out. Here's Cherokee Shuffle, recorded with the built-in mic on my iPhone (the one you talk into when you call someone). The bass is a "virtual instrument" that's built into the program--I don't have an upright bass.
I think it sounds pretty darned good. The mic hypes the trebles some, but I think you really and truly could record a commercial album on your dadgum old phone, as long as you have a good engineer master it after it's recorded. Amazing.