For most developers (including yours truly), the most straightforward way to design and prototype an app tends to be, well, building it out. Interface Builder is of course a great help here.
This approach doesn’t work particularly well though when you’re collaborating with others – particularly others who aren’t comfortable with Xcode. You can get a good feel for this when the response to your suggestion along those lines is “WTF”.
So. There’s a great roundup of iPhone interface design tools – ranging from paper to online – here:
http://www.henkwijnholds.com/sketching-prototyping-tools-iphone-apps/sketching/
The whole paper approach appeals to me, so I’m quite interested in the iPhone UI Stencil Kit – particularly since it includes a pencil, and I can never seem to find a pencil these days.
There’s also a useful (free) sketch template, which you can download and print, and if you have your own pencil and ruler (and you can remember all of the UI elements), this might be enough.
In the “not paper” category, iPlotz looks kind of interesting. I’ve only tried it briefly, but it looks like it may have legs.
I have to admit that the really fascinating aspect to all of these tools is that they exist in the first place. In all the years I’ve been doing mobile work, there’s never been this wealth of design material – which is a great indicator of the degree of the iPhone’s success.