The iPhone provides a nice browsing experience from the UI perspective. However, normal browser architecture is very badly suited for use with a device with relatively slow connection speeds — reloading every page every time is slow and aggravating.

While the nominal connection speed (on the 3G model, anyway) is sufficient, the actual throughput is often much lower, especially in areas where 3G is not available.
Google Gears provides local storage (among other nifty things) for the browser, allowing effective caching and offline access to content. This feature is crucial for functional web apps, but can also greatly enhance the web browsing experience.
Currently, Safari is the only browser option available on the iPhone and it does not provide offline browsing. Hopefully Apple will allow other browsers with this feature AND also add it to Safari.
A sensible way to do this would be to work with Google and bring Google Gears to the iPhone — Gears would be a great addition to iPhone and make it a better web application platform.
Unfortunately, it seems Apple and Google will be at loggerheads because of Android and the two companies working closely together might be a pipe dream.