Note (Thursday, January 21, 2010): This thread is so outdated it hurts. I'll be creating a new thread later this week or next containing better apps and such. I'll update this post with a link, of course.
Note 2 (Tuesday, October 12, 2012):... Ok. The thread never happened. Well, anyway, very long story short: The app Comiczeal is awesome. Far better then anything else on the appstore. Get it and ignore the rest of this post.
I love my iPhone. I really, really do. But I have always hated the fact that the image viewer was zoom-limited to the point of making Manga impossible. Lucky for me, a new app called iEnvision fixes this very well.
iEnvision is a online image viewer and server side viewer, meaning that you will need a 3G or Wifi connection to use it. But what it does is connect you to an utterly legal repository of over 1500 manga. (This is my rough count. Feel free to correct me) It has other categories too, but truthfully, I don't really touch them. Its interface is -very- nice, a tap opens or closes a navigation menu, a pinch zooms (and with insane resolution), a swipe moves you around the comic, and a flick brings you to the next page (Or you can use the Navigation menu)
Now, Admittedly, It has some very painful drawbacks. Perhaps the biggest of which is the fact that- for all the shiny goodness of the iPhone, it Isn't paper. If you are used to paper, it will get some getting used to. Along with that, it costs 10$ (5$ today, as its Black Friday). A low cost if you think about it, but it is still quite pricey for an iPhone app. Anyway, a great Manga reader, and a legal alternative to many other methods.
Get it here