I fully realize what VNC is. However, the server very clearly has a way to take external inputs (ie, the packets over the network) and translate them into what is perceived as key-clicks by the iPhone software. I'd rather have a USB or BlueTooth solution as well, but there has been little to no progress (it seems) made on making that actually work as both would require kernel-level modifications if USB is even possible at all.

However, it would be a (probably) trivial modification to the VNC server to get keyclicks over the serial device instead of the network protocol. Worst case, I suppose one could write a VNC client that ran on the phone and talked VNC to the local server, but that seems like it would add a lot of unnecessary layers of software.