Soundside’s RealPiano (App Store link) sounds surprisingly good. It’s a sample-based piano that seems to be limited primarily by the fact that the iPhone interface doesn’t offer a lot of expressive options. 

Features:

• Professional sounds:
  • 16 bit resolution
  • 44.1KHz sample frequency 
  • Uncompressed samples -
  • Full stereo Enhanced reverb (hall) sound
  • Optimized for both headphones and inbuilt iPhone speakers
  • play along with your iPod (the app won’t stop your inbuilt iPod sound)
• Polyphonic sounds: 
  • Play chords with up to 5 tones at a time (iPhone can detect max 5 touches at once) 
  • In case you play the same tone more then once 
• Choose between 3 different keyboard sizes
• Transpose the keyboard up and down
• Very fast start of the app – start and play

RealPiano standalone is fast (very short latency). If you play along to your iPod, though, then the latency will be increased. Make sure NOT to use the iPod EQ (system settings), because this will need a lot more power from the CPU – and lead to higher latency. Switch off the Phone, WLan and Bluetooth to get even faster response.

For iPod touch users: iPod touch (first generation) has no inbuilt speaker, use your headphones. In order to hear the RealPiano sounds activate your system sounds via ‘General-Sound Effects’ set it to ‘both’ and turn up the volume ‘Settings – Music – Volume Limit’.