Many people still don’t know what you can do with an iPhone or an iPod Touch to make music, especially from the hardware point of view. Chris Shattuck condensed a lot of useful informations disseminated around the web into a single post called The ultimate guide for turning your iPod Touch or iPhone into a mobile pocket studio.
For example there you’ll learn how to input an external device, like a microphone or a guitar.
For those who wonder if it’s possible to get high quality stereo input, well, unfortunately it appears that the only way is to buy some expensive device (which seems not to work on iPhone 4 though). If you’re considering this investment, be sure to check FaberAcustical’s blog: very informative and technical posts are summarized at the bottom of this page.