Google built a search interface optimized for iPhone that uses the AJAX Search API and it's available at www.google.com/uds/samples/iphone/isearch.html. The interface has all the limitations of the API (for example, you can only see the first 8 results), but it's more usable on a phone.
Mark Lucovsky's team has also added image search to the API, which now includes support for web search, custom search engines, image search, Google News, blog search, book search, Google Maps and video search. Until now, the AJAX Search API was mostly used to build widgets for blogs and personalized homepages and didn't successfully replace the discontinued SOAP API.
Update: A Google spokesperson asked me to clarify that "this is a developer demo, not a new Google service". Google only wanted to show how easily developers can use Google search in their iPhone apps.