iCosta: first system-wide Chinese input method!
1. Point your MobileSafari to iphone.freecoder.org.
2. Tap on the logo with a room on it, which is the .plist file (http://iphone.freecoder.org/repository.plist) that adds iCosta to your Installer repository. Tap on Yes.
3. You will now see iCosta in the Localization category of Installer.app, install it, reboot, and you're all set. Use the '.?123' button to switch between English, Chinese (Pinyin) and Numbers/Punctuation.
Currently there's only Pinyin input for Simplified Chinese, and it works ONLY ON FIRMWARE 1.0.x. 1.1.1 users have to wait.
iCosta is developed by Holly Lee and Pinxue (pinxue.net), their website seems to suggest they're Shanghai-based. (And Costa is the cafe in Shanghai where they the did the coding.) It's now version 0.9 but already highly usable in most of the iPhone apps. (Some reported incompatibility with ApolloIM.) Kudos to the team!