I have been asking a lot of people lately, "what happens when you click on an URL to an MP3 while web surfing on any iPhone? Does it stream? Does it download? Does it do anything?". I have been a bit shocked that virtually everyone's answer back to me has been, "I don't know, I haven't tried it.".
Well, I finally got my hands on one long enough to try for myself. The answer? It launched the iPhone's QuickTime player, buffers a little bit, then plays it. Cool... as I had hoped. :-)
Granted, I was doing this over AT&T's EDGE network, so it quickly stalled trying to stream a 128k MP3 over a network that is generally slower than that - but I assume that over WiFi it would do just fine.