The iPhone OS 4 Beta SDK has revealed that the next generation iPhone could have the ability to capture video at 720p, according to MacRumors.
The site notes that new APIs in the SDK give developers full access to video capture data. Currently the iPhone captures video at a standard 640x480 ("VGA") resolution; however, a preset value has been found that suggests a future iPhone will be able to capture at 720p (1280x720) resolution:
Even the 3GS should have this ability...of course that would mean shorter battery life, but in real life, it would be used to record short clips but at high quality so the impact on the battery would be minimal, the same goes for the storage capacity, if that takes too much space, simply transfer it to your laptop/desktop. Let's hope it will be something possible...