Not that long ago, the very first third party, 'true' iPhone application was making the headlines. Sure, the 'Hello World' app is the simplest of all possible applications, but even so that was a very significant first step. Now, it looks like the second step towards real applications on the iPhone is here.

The very first real, third party, full-fledged application for the iPhone has a graphical interface and its own icon on the device's home screen. Named MobileTerminal, the application is 'a terminal emulator application for the iPhone' and it is functional.
Many won't find this terminal application in the least exciting and even for those who understand the implications of this development it probably has limited uses, but it is here. The degree of completion of the application, the graphical interface, the home icon, everything is huge and significant, despite the application itself being simple and lackluster.

This first full iPhone application is a herald of things to come and it will undoubtedly not be long before other applications start surfacing. Unfortunately, all this work being put into the development of real iPhone applications is at Apple's mercy. In theory the company could at any time issue an update for the device that will break all this work and return the phone to the locked state it shipped in.
Despite the significant progress being made with these apps, Apple has so far made no such move, despite having the option to do so in the first iPhone update. It could be that Apple is still waiting for things to move even further before it cracks down on them, or it could be that Apple is simply going to continue to ignore these third party applications.

Third party application does pose a security and stability threat to the device and this is the reason why Apple does not officially allow them. Opening the door to third party applications would mean a support nightmare for the company as poorly made programs could seriously impact the functionality of customer's iPhones. However, if Apple simply ignores these development efforts and lets them exist in a grey area, they can simultaneously let people have their programs, while not having to offer support to people who mess up their iPhones since such applications are not supported.