I use the iPhone for recording regulary. Jam sessions, concerts. While the sound quality is not brilliant, it surprises me how a tiny microphone can allow for a decent result. So I use it as a sort of little musical notebook. The main thing is to record at a fair distance - the mike gets overloaded quite easily, and there is no such thing as a gain control. I use ITalk for recording.
On my soundclick site, the recording 'BIM jam - what is this thing' was made with the iPhone - I just put it down on the bar next to the stage (and next to the drummer in fact) and started the app.
I have recorded with my iPhone in the past. Usually I will then transfer the audio out of my phone to mess with the recording. I will usually transfer stuff out to my beatmaker application from beatmaker.net . So far I have been really impressed with the software when handling iPhone audio. I honestly think if you record on an iPhone it is best to transfer the audio out for editing.
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