SpaceRef has an article about NASA Ames PhoneSat project. PhoneSat is a based on the standard 4" Cubesat and reportedly costs a meager $3500. The off-the-shelf hardware includes the HTC Nexus One Android smart phone with its cameras, sensors, GPS and radio. They have 'shaked and baked' them and have flown them on balloons and sounding rockets. I suspect the cost of the testing dwarfs the actual hardware cost.
The first orbital mission will merely take photos and transmit them with satellite status to the ground. I wonder how they get around the laws restricting the use of cell phones at altitude. And, will the units GPS work at orbital altitudes and velocities? It wouldn't be surprising that the government can break its own rules, but I though GPS restrictions were supposed to be built-in to commercial units. It will be cool to hear more about this project.