I actually just spent a fair amount of time researching iPhone credit card processing for a client.

Innerfence's product is definitely the best of the bunch. However, all of the card processing apps on the app store , including Innerfence's, just talk to the Authorize.net payment system. Another one also supports paypal in addition to authorize.net.

As someone who has built both iPhone apps and built apps which use authorize.net for payment processing, I'll say that this isn't trivial, but it certainly isn't a huge challenge if you know what you are doing.

Thus, I can't help but think there must be something else to Dorsey's idea.