No, not an iPad someone accidentally put through a hot wash, you're looking at an iPhone 3GS running iOS4 and seated in the iPad's Keyboard Dock. Andy Ihnatko slapped his freshly-updated smartphone into the dock to see if it would work, and sure enough it does. Not only basic text entry, too: the shortcut and media control buttons are all playing nicely.
Video demo after the cut
Andy had a couple of problems with repeated letters being registered when he'd only pressed the key once, but that turned out to be an issue with the iPhone not being properly seated in the dock connector. The home button, media controls, Spotlight search and cut/copy/paste all work; of course, you can also pair up a Bluetooth keyboard if you'd rather go entirely wireless.
Unfortunately, the iPhone 3GS won't work with USB keyboards plugged in via the Camera Connector adapter, unlike the iPad. However you can of course use a dock connector extension cable if you want to use the Keyboard Dock with the iPhone 3GS in landscape orientation. We're not sure many people will have pockets big enough to fit both their iPhone and the iPad keyboard, but if you're typing out a very long SMS message while at your desk then this could be a quicker way of doing it.