I heard about this application on the AppSlappy show and thought I would give it a try. The application is called 'Sleep Cycle Alarm Clock' and costs .99 cents in the app store.
I've only tried it one night so far, but I have to say I'm impressed. What the application does is use the accelerometer in the iPhone to detect your movement, and what state of sleep your in. You set what time you want to wake up, and the program will take your sleep state into account before it sets of the alarm. I woke up in a good mood, and other people actually commented on it this morning when I got to work. My brother gave it a shot as well and he said that it seemed to work well for him too.
Here's a link to the website http://www.lexwarelabs.com/sleepcycle/ and I'll be interested to see if it continues to work as well as it did the first night.