Clippy has been mentioned in popular sites now that I just had to try it out. It is currently in beta, only version 0.9 now, so it may not be properly stable. It adds two additional buttons to the virtual keyboard in the “numbers” section. You highlight the text to be copied by dragging your finger along the text, select “copy” (the copied text will be displayed beside the additional buttons), then locate the place where you would like to copy it to. It could be in another application, of course (except Safari Mobile as reported by lifehacker).
This gif image is created by yours truly using glickr.
I find that it is a very seamless implementation. I really like it. However, the highlighting seems to be permanently on for me. If I need to correct the middle part of a word (yes, I do make mistakes despite the excellent spell check), I would have to drag my finger to place the cursor there. Now, it automatically highlights the dragged portion, from where the cursor was to the destination. I am not sure if this is an intended design or a bug, so I have sent an email to the author of the app. According to him, this is an intended design.
Another minor annoyance I have with this is that in the SMS app, if you switch to the number mode in the keyboard, the placeholder where you write your message will be replaced by the copy and paste buttons. Not a super high priority flaw, but still an annoyance nonetheless.
For those of you with jailbroken iPhones, this is a worthy addition to your list of jailbroken apps. Right up there with SSH, PdaNet and BossPrefs. Install it via the iSpazio source in Cydia now!

