Cut and Paste - really, crappy $40 phones do this!
better Recent Call info (time and incoming/outgoing information).
ICE (In Case of Emergency) info on the Lock Screen. That way you don't have to make a funky wallpaper with the info that you always see. Other cheap phones have this feature too!
More memory. I would like to put my whole music library on it, even though I know it isn't practical. Around 60GB. Oops forgot my demo reel and other video. Ok make that a 120GB iPhone

Voice Dialing (user independent).
Turn by Turn nav (like the one Tom Tom has waiting in the wings).
FLASH on Safari! (I know it is already being worked on).