UMPCFeaver (in Chinese) has posted photos of what it claims to be the autofocus feature of the upcoming iPhone OS 3.0. some claim that the OS 3.0 will also boost the image quality from old phones, but if the iPhone 3rd Generation's camera has an autofocus, it would make things even sweeter.
From the screenshots, it looks like users can tap to indicate where they want the focus to be.
Update: the UMPCfever page has been removed since
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