Screenshots from an unreleased iPhone OS build have seemingly confirmed that the next-gen iPhone will have an integrated magnetometer, aka a digital compass. That would allow the iPhone to recognize which direction users were facing, and work in tandem with the smartphone’s GPS for better-performing navigation and turn-by-turn directions.
The screenshots show options to switch on and off compass functionality, and appear to have been taken from the iPhone OS’ debugging menus. There’s also a “Kitchen Sink” menu, which is presumably the place for all of the other “not for public consumption” options that are required in these testing stages but not when the device is actually launched.
Magnetometers have been used to good affect in the T-Mobile G1 and HTC Magic, with various applications relying on them for augmented reality programs. These have included overlaying topical information onto an on-screen view of the local area.