You have to admire the ingenuity of these guys – they’ve got the bones of a SIP client running on an iPod Touch (not an iPhone).
The problem (why does there have to be a problem?) is if Apple wanted anyone to talk on an iPod they wouldn’t have named it an iPod now would they? Sit back and wait for the Apple hammer to fal. Personally I hope they get something finished before the lawyers turn up, and I don’t even have an iPod Touch.