I've been telling people how much I dig Adobe's free Ideas app and Autodesk Sketchbook Pro for sketching on the iPad. Craighton Berman's Fueled by Coffee sketchblog will give you an idea of what sketches can look like using these tools. Ideas is super simple and smoothens your lines so things look naturally drawn.
I'm really loving it. The adjustment is taking time, and it's not as quick as pen and paper, but it's slightly more natural using a Pogo Sketch Stylus.