I guess it's obvious that the iPhone would be able to play games, but here're some more strings from iTunes
http://www.hardmac.com/news/2007-03-06/#6499
"4301.161" = "Are you sure you want to sync games? All existing games on the mobile phone ^1 will be replaced with games from this iTunes library.";
"4301.162" = "Are you sure you do not want to sync games? All existing games on the mobile phone ^1 will be removed.";
"4301.163" = "Syncing games on ^1";
"4309.126" = "Songs cannot be added to ^1 because all of its space has been reserved for data.";
"4309.127" = "Syncing contacts on ^1";
"4309.128" = "Syncing calendars on ^1";
"4309.145" = "The Apple TV ^1 is synced with contacts and calendars on another computer. Do you want to sync with this computer and replace all existing contacts and calendars on this Apple TV with those from this computer?";
Not sure what video processor the iPhone uses, but if it used one of the nVidia mobile chips it should be pretty good for games too.