The newest iPhone has a magnetic compass built in. It is not available in the first two because there is no magnetometer (i think thats it) within the unit.

I tested one this weekend, and had no complaints. (except I have the wrong iPhone)

All the other compass apps. require motion over the ground to use them and aren't really that great.

Weather.com and i.wund.com (Wunderground.com) are both apps. I use extensively to avoid getting blown away in storms when away from home.