An iPhone baseband engineer lost a prototype model in a bar, which was later recovered, sold to Gizmodo for $5000, and dismantled, revealing the internal components. During the process of dissecting the next generation iPhone hardware, a few details couldn't be determined, such as the screen resolution and the camera.
Because the phone was delivered to Gizmodo in a non-functioning state, details about the camera were left unknown. However, LG Innotek will be mass producing the 5MP camera hardware for the iPhone, starting in the second half of this year. Currently the iPhone 3G and 3GS are equipped with a 2-megapixel and 3-megapixel camera.
This years iPhone 4th generation model will also support an LED flash, something that was never included in earlier models of the iPhone. The source didn't confirm if the 5-megapixel cameras will include zoom, but this will likely be done at a software level.