I discovered that the Belkin TuneTalk Stereo microphone indeed functions beautifully with my iPhone 3G. I purchased the Belkin TuneTalk Stereo microphone originally, to use with my iPod fifth generation. It worked great with my iPod, except for the occasion hickup when the iPod 5G would pause for a second to write to disk (very annoying). But the sound quality was great. When I purchased my iPhone 3G, I was curious if it would work, so I plugged the microphone into my iPhone. It fits perfectly, however, you get the following message popping up on the screen when you plug it in.
But if you discard the message (by tapping on NO) and them open up the iTalk application (by Griffin Technology) you now have an awesome portable digital recorder. I haven't found anything better yet for the iPhone to record great sound. Plus the microphone is so small that I can pop it in my shirt or jacket pocket and easily insert it into my iPhone when I need to record something.
Plus the the TuneTalk has a stereo mini-jack for a line in, which means that you can easily insert an out from the master board line out at a show if you need to record something live.
I use this all the time now to record events, meetings, songs, interviews, inspirational moments.
iTalk application: http://www.italksync.com/
Belkin TuneTalk: http://catalog.belkin.com/IWCatProductPage.process?Product_Id=277661