My current editing apps

[The Brez Man]

I've started playing around with DashOfColor (free) recently and really like it. It lets you take a photo from your camera roll, turn it into a black & white picture, and then let you paint an area that you want the color to pop out to give it that artsy look. They also have an iPad version that's free.
www.appshopper.com/photography/splash-of-color-free

Here's an example:
lh3.googleusercontent.com/-BFzbxBHhvNQ/T_o6YRlzpdI/AAAAAAAAAXw/Jzn7lylgygM/w168-h223-n-k/color4.JPG

It's very easy to use and allows you to zoom in on an area to get a fine detail.

I also like Aviary (free) to do some simple editing of photos including adding text.
www.appshopper.com/photography/photo-editor-by-aviary

I also used PicCollage (free) a lot whle on vacation to put a bunch of pictures together to send to people without having to send a bunch of individual shots. It seems to work quite nicely.
www.appshopper.com/photography/piccollage

[jecwobble]

If you have used PhotoShop and worked with layers and masks, you might like PhotoForge2 (www.appshopper.com/photography/photoforge2). It is a bit involved and probably better suited to an iPad than an iPhone/iTouch, but very powerful. Here's a (not so impressive) sample of what can be done:
www.photojec.com/Personal/Family/Misc/i-KWVpSNG/0/L/CA08061213032889-L.jpg

Some of the things I did with that photo (besides saturation, etc.) is to layer a closeup of leaves on top of the picture of my wife, blur it, then make a mask to "punch a hole" to see through it. The effect I was going for was as if I was taking the picture through the leaves of a tree or bush.

[The Brez Man]

That's kind of a neat effect and I can tell what you were going for.