A few days ago, iVideo Camera App was approved for the App Store by Apple. This app lets you record video on iPhone 2G or 3G at 160 x 213 resolution, 3 frames per second and 1 minute per video. This was the first time that Apple allowed such an app in the App Store. But now another app called Camcorder is available in the App Store which again lets iPhone 2G and 3G records video but at a relatively decent resolution of 320 x426. The recording time is unlimited (limited by the memory available).
Camcorder is available in the App Store for $0.99. If you try it, let us know about the recording quality in the comments.