Audio routing in the iPhone OS is a bit tricky. The rule that it seems to follow is "last plugged is used".
If you want versatility in your input choice, I would recommend the Alesis ProTrack (good integrated mics + XLR/Jack inputs). Don't forget that you have to use the iPhone jack for outputting sound. It's a bit expensive however.
If you want a simple good electret mic, while maintaining the ability to connect your iPhone to external speakers, I would recommend the philips SHH1610 (simple mic + heaphone jack output).
I own a iPhone 2G too and the 2 mentioned accessories. So it's my actual setup, and it works great
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