SDL has been ported to the iPhone and Apple seems to distribute an SDK free of charge. However, distributing to the public requires developer registration and a Developer Program membership ($99) (due to Apple requiring binaries to be signed).
I know, I've looked into it myself before for other projects... I am tempted to sign up at some point, irritating though it is.
I'm a C# man (boo hiss) by the nature of my job, but I've long been keen to take a dive into something a little more cross-platform. Maybe I'll start looking at the source code- I'm sure it'll be months before I even know what I'm doing with it, but still.
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The best user interface I can think of involves an on-screen gamepad/keyboard (as a bonus, this could be context-sensitive, showing only the currently available features); multi-touch would, I guess, make this sort of usable. You could use the accelerometer, but you still need more buttons. With a 320×480 display, you could use the bottom half as an input device (avoiding the problems of obscuring the display and scaling).
I got as far as thinking about SuperMelee- acceleration button on the left, primary and secondary fire on the right, and accelerometer for steering. Combine that with the iPhone's internet capabilities and you'd have a pretty compelling multiplayer game. What kind of connection speeds are needed for the internet multiplayer, as is?
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The problem here, like with many hand-held and console devices, is the lack of developers who actually have one of these devices and care about developing for it. Making developers jump through hoops to distribute their work isn't going to make it easier, either.
No doubt. As I said, I'm going to take a peek at the source code, mostly out of my own curiosity really, so no-one reading this message should think I'll ever have anything to show for it.
...but wouldn't it be awesome? Hah.