While revelations from Apple's iPhone SDK indicate that the company is planning built-in GPS functionality for a forthcoming model, current iPhone users likely won't get access to Apple-supplied, hardware-based, true GPS features, instead continuing to rely on the current cell tower/WiFi triangulation method. However, a small team of developers calling itself "iGPSD" is now taking orders for a hardware/software add-on that, albeit clunky, brings true GPS capabilities to the current, first-generation iPhone.
The solution consists of three parts: a $16 iPhone "GPS Cable," a $100 Holux M1000b module, and free software that ties the hardware to the iPhone's Google Maps application. A video demonstration of the device in action can be seen below, or here if you are on an iPhone or iPod touch:
As you can see, the Google Maps application updates every second or so with updated, current location information.