This will blow your mind. I am going to download the free sample of the Word Lens app right now. (Note: only the English/Spanish version is available right now. Can't wait for the French.) I've recently downloaded two other really fun apps: the Hipstamatic and Talking Carl. The Hipstamatic takes vintage-looking photos and some people can get really cool results with it. I've been playing with it for a couple of days and will share soon. Talking Carl, who repeats whatever the children say to him in a funny voice, keeps them occupied for ages.
I wish everyone could afford to have an iPhone. Apps like these would make fantastic stocking stuffers.