MacRumors reports a rumor (heh) that Apple might be working on a break-through new digital camera that would be based on the camera software and technology in the iPhone. Speculation is that the supposed Apple camera would have an entirely different form factor than the typical digital cameras, all of which are designed around the legacy form factor of the analog film SLR.
I have an iPhone 4S, and I can attest that the camera software takes astoundingly good pictures--better than my $150 point and shoot digital camera. And it is much easier to use.