Engadget has a story that shows the iPhone with a TomTom GPS module connected at the bottom, on the route to Rotterdam in the Netherlands. Is it real or fake? No one can know for sure, but there's at least a possibility that it's real. The picture quality of the "proof" is horrid beyond measure; the JPEG compression artifacts are pretty much out of this world.
If the iPhone does work with TomTom and a GPS dongle, I'll be a happy, happy camper. TomTom's map setup is actually pretty excellent; I've used it for driving and stuff on the Treo. Their device activation was horrible with all the software keys you have to input, but once you got it working, it was excellent.