Steve Jobs has confirmed the rumor. It looks like this won't be just widgets -- it will be full, system-level native apps. It will be interesting to see how they perform this -- as the iPhone stands, everything is running in 'ring 0'. My guess is that they're going to have to redesign the iPhone to run in multi-user mode. That is, some things will be running as root, other things will be running as 'radio', and some things will be running as 'Mike Overbo', for example. From http://www.apple.com/hotnews/:

Third Party Applications on the iPhone

Let me just say it: We want native third party applications on the iPhone, and we plan to have an SDK in developers’ hands in February. We are excited about creating a vibrant third party developer community around the iPhone and enabling hundreds of new applications for our users. With our revolutionary multi-touch interface, powerful hardware and advanced software architecture, we believe we have created the best mobile platform ever for developers.

It will take until February to release an SDK because we’re trying to do two diametrically opposed things at once—provide an advanced and open platform to developers while at the same time protect iPhone users from viruses, malware, privacy attacks, etc. This is no easy task. Some claim that viruses and malware are not a problem on mobile phones—this is simply not true. There have been serious viruses on other mobile phones already, including some that silently spread from phone to phone over the cell network. As our phones become more powerful, these malicious programs will become more dangerous. And since the iPhone is the most advanced phone ever, it will be a highly visible target.

Some companies are already taking action. Nokia, for example, is not allowing any applications to be loaded onto some of their newest phones unless they have a digital signature that can be traced back to a known developer. While this makes such a phone less than “totally open,” we believe it is a step in the right direction. We are working on an advanced system which will offer developers broad access to natively program the iPhone’s amazing software platform while at the same time protecting users from malicious programs.

We think a few months of patience now will be rewarded by many years of great third party applications running on safe and reliable iPhones.

Steve

P.S.: The SDK will also allow developers to create applications for iPod touch. [Oct 17, 2007]