I'm brand new to Geocaching. Have only been on four hunts. Have only found one cache. The iPhone's GPS is pretty good. However, don't expect to do a lot of hunting in one day as the battery can drain fairly fast (especially when also using 3G to check the website).
To be honest, though, I find myself wanting to buy a dedicated GPSr. My two big issues with the iphone is that 1) the screen gets all finger printed up and is hard to read in direct sunlight, 2) it takes a few seconds (sometimes longer) for the GPS to lock on when turning the screen back on or loading Maps back up (whereas a normal GPSr pretty much always keeps your position - assuming you don't turn the unit off). [other small complaint is that I'm often fearful of dropping the iphone or getting it scratched up - but I can't really complain too much since, like as has been pointed out, I could buy an Otterbox]
On the BIG plus side, it's really awesome to have a single unit that does it all and fits in a pocket very well. I wouldn't have found out about geocaching without the iphone. Like other people have said, once someone makes an app for the iphone that'll search for nearby caches I think the iphone will be a big favorite of geocachers. [i think the only thing a person would need then is a car charger, an Otterbox, and a software update that'll keep the GPS lock better.]
I think I'll try to borrow my dad's GPS to see if it keeps a lock better than my iphone. The iphone is pretty darn accurate, but it does seem to have a harder time around trees than I think a good GPSr would. Anyone have experience with a dedicated GPSr and an iphone? How do the locks compare? Sometimes I feel conspicuous as I wait for the iphone to lock back on my location. Plus, I think people would look at me less strangely if I were holding a GPS unit instead of a shinny black camera phone. I worry that people might think I'm taking pictures of them or their kids. I'm a respectable looking guy, but I don't want to worry anyone.