Check out the video http://budurl.com/ravesvid
The hit app Rave Light now comes with a version that works with the compass.
While as the original Rave Light works using the built-in accelerometer's x, y, and z values to make RGB combinations, this app uses the built-in magnetometer (i.e. compass) to generate an HSB combination.
"and THIS will be the reason I get an iphone..." - Reaction on YouTube to Rave Light.
Point the device North to get Red. Point it South East to get Green, and South West to get Blue.
Cheaper than a pair of glow sticks.