Whether you're excited or disappointed about yesterday's iPhone 4S announcement, there's one little bit that the camera makers can't be happy about: Apple is building their own dedicated camera ASIC and adding it to the iPhone.
From Apple's statements it appears that this initial iteration is not focused on image conversion or final pixels, but on improving the acquisition itself: shortening the shutter lag and improving things like face detection autofocus. Still, now that the barrier has broken, we're going to see more and more things get stuffed into the ASIC and removed from the main (now dual core) CPU, I think. HDR, sweep panorama, distortion and other corrections may end up in the province of that chip, making the iPhone line more like a compact camera inside a phone than just an imaging sensor inside a phone.
At 8mp with BSI technology, the image results are going to get closer to some of the low-end compacts, too. Wait until the phone makers start to figure out folding optics: that'll allow larger sensors and more sophisticated lenses. The nail is on the coffin and being hammered now. It's only a matter of time.