This is very promising. I have already installed the Arabic font, and Arabic keyboard and now I can read/write Arabic SMS, Email, and open most of Arabic web sites.
The good news, more programs are in in the works right now including prayer program, Quran, and more. For more information visit this website: www.iphoneislam.com.
Also, for more inforation about the full Arabic support watch the following video: http://www.iphoneislam.com/?p=22
Also, I have been experimenting with writing a prayer program myself, and I am planning to post it soon on this blog. The program will play the athan at prayer times, and it will display the prayer times for the current day. More information will follow soon.
I am planning to put it as open source under google code portal