Rumor has it that the next gen iPhone will get a 5MP camera, though the video capabilities of the hardware are unknown. MacRumors reports that iPhone 4 Beta SDK, reveals the ability to capture video at higher resolutions than the current standard 640×480 (“VGA”) resolution. These preset values suggest that a future iPhone will be able to capture at 720p (1280×720) resolution:
Rumor also has it that the next gen iPhone will be dubbed the “iPhone HD” which makes much more sense if this video recording capabilities will come true. Remember that this are just rumors/speculations and we will never know for sure until WWDC10.