I've been trying to help my friend set up his iPod to tunnel through his home SSH server, but I can't quite figure out how to set up everything EXCEPT the ssh connection to proxy. If I open the tunnel and then change the wifi proxy, the tunnel will be sent through the proxy, and then it will close [since it can't go anywhere.] I'm wondering if there's a way to proxy everything but the ssh tunnel, or maybe only safari or to only proxy <insert app here>? Any help would be appreciated.

Thanks!

I'm guessing this answer isnt going to be much use to you this late, but maybe someone else can find what they're looking here instead. Here's what I've done:

1. Set up Squid (proxy) on server.
2. Make sure SSH-port is forwarded correctly
3. a) Start MobileTerminal on the iPhone
b) Type "ssh -fNL 8080:localhost:3128 username@address.com -p 443"
4. Go to settings and configure the wifi to use manual HTTP-proxy. Enter localhost, port 8080.
5. Surf safely

The flag "f" makes the connection go to the background as soon as you've logged on. As I recall, the N flag is required for this operation. If you want to access the shell as well as establish a tunnel, just leave these two out.
The last flag, "L", creates a port-specific tunnel between yourself and the server.
8080 is the port opened on your iPod. Localhost is your iPod. 3128 is the default port of squid.

Edit: -p indicates which port to connect to. I've set SSH to port 443 as this allows me to get past certain restrictive firewalls.