Currently, Unity 3 beta will not build for iPhone when cloth physics are in the project (it says the cloth components are not supported for the platform).
Is iPhone support for the new cloth physics in the works? I have some cloth-centered games I'd like to begin working on, but if the technology won't be present for many months I should probably come up with some other ideas :)
At least in the near future, the answer is no. As others stated, the performance implications do not make cloth use very feasible on the iPhone. In addition to that, the cloth code is also rather big, and compiling it in would make the iPhone build several 100k's larger - as we know that build size is a very critical factor, we'd rather leave the feature out, as we doubt many people would use it given the performance constraints.
Unity 3.0 won't support cloth physics and it's unlikely that cloth physics will work on the iPhone at all. However, UT may be looking into supporting cloth physics at a later point in time. One of the reasons cloth physics is not easy on the iPhone is because PhysX is not optimized for ARM architecture at all. So it's not only the 1 GHz but also that it's an architecture that's just not that well supported (yet).