I had the opportunity to see a demo of Phatware's Writepad at Macworld and was very impressed. It lets you simply write on the screen using your finger or a stylus pen rather than using the onscreen keyboard, and translates your writing into typed characters. You can then edit that text — copy, paste, insert characters, etc. — via simple gestures. The app has a ton of features, such as shorthand, which lets you enter just two characters to evoke frequently used words or phrases.