Here are two quick examples I produced while sitting at my desk at home. Note: the quality of these images isn't great - I was just doing a couple quick tests. In the second image the room is pretty dark so it's really grainy, plus I wasn't in the center of the room, so the view gets a bit distorted with the close up and far away stuff. That's not Pano's fault. It's my impatience. (You can click on the images to see a bigger view, but remember, I warned you the second image is VERY grainy.)
It doesn't always produce perfect results (as you can see in my quickly made samples), but it's very comparable to the application I bought for my Mac a few years ago to perform a similar function, and I paid about $20 for that!
A nice feature about the app is when you take each successive picture, it shows a semitransparent overlay of the pervious picture on the left edge of the screen, so you have a good visual cue for lining up the next photo.
Due to the processing power of the iPhone, the results are not instantaneous. Depending on how many photos you take, the processing time takes an equivalent amount of time. The second example above was made up of about a dozen photos and took the iPhone several minutes to stitch it together. While the stitching is being done, you have no choice but to be patient and wait - you do get to watch a progress bar, so there is some visual indication of how long the process is going to take. You should be aware you can't take a bunch of photos and batch process them at a later time. That might be a nice feature for a new version.
If you are at all interested in taking photos with your iPhone, this definitely worth a look. You can find it on iTunes here.