Update: HTML5 Theme in 1.7+
After installing the iPhone Theme for Magento via Magento Connect do the following:
Simply configure the exceptions under “System”->”Configuration”->”Design”
Expand “Themes” see the screenshot and use the values “Mobile Safari|iPhone|iPod” for Matched expression, and “iphone” for value. Since both iPhone and Android use WebKit they will both return the user agent as “Mobile Safari”. Be sure and realize it IS case sensitive for all values.
However after some further testing with some iPhones won’t return “Mobile Safari” so the condition for iPhone or iPod needs to be added as well.