Bloom is a "generative music" app created by Brian Eno and Peter Chilvers. When you touch the screen, the app draws expanding circles and plays Music for Airports-type music. It will also play just by itself, which helps. The other app that falls into this "pleasantly distracting" category is trusty Koi Pond.
With the gentle prodding of a parent, Toddler Flashcards helps teach shapes, colors, the alphabet, and so on. The app gets bonus virtue points for sounding words in French and Spanish. It's also preternaturally pleasing to swipe from one flashcard to the next.
Shape Builder is an example of a classic toy—silhouette puzzles—that I've had little success with in the real world, yet my son loves on the iPhone. In the real world, the wooden pieces typically get lost or launched across the room at some point. After playing with the iPhone edition, my son tried to show me a completed puzzle while I was in the shower. This is the app that was recommended by Slatereaders most often.
White Noise: What greater gift to the iPhone Mom than a toddler soothed to sleep by ocean sounds? White Noise tops the virtue scale because we all need more sleep. Think of the brain development going on in the crib while you tuck into a new game of Solitaire.
The dedicated iPhone parent will note that my list is incomplete. I did not delve into the math games, storybook apps, letter-writing apps, or the Balloonimals juggernaut—all staples of iPhone life. If you want more, take a look at www.bestkidsapps.com, an app review site written by two moms/bloggers/journalists.
P.S. Two words for all of the iPhone Dads out there: Dragon's Lair.