I downloaded a game called Scrablle CE and it allows you to "swipe text" the letters you want to select. I know other smartphones out there has swipe texting.....do you think it will ever come over to iphone land? Comments welcomed!
There is an app called "Shapewriter" which is available in the app store and is exactly like Swype.
One thing I should mention though is that currently Apple does not allow 3rd party apps to access the message or email applications directly, so any text created in the Shapewriter app will have to be copy/pasted into an SMS or email.