I recently got the opportunity to demo Parents.com's new iPhone / iTouch Application, iPlay 'n Learn, designed to entertain/educate preschoolers.
It's very simple, cute, and my boys seem to enjoy it. It's sort of like digital flashcards. I've used it to distract them while waiting for doctor's appts and stuff like that when I'm in a pinch and don't have anything but my phone to entertain them.
You can check it out here. Pretty good for only $0.99!!