9 to 5 Mac and MacRumors report Apple is in the process of developing an application to bring FM radio functionality to the iPhone and iPod touch. The functionality would be similar to that found in the iPod nano, which offers the ability to pause radio and tag songs for use in iTunes (via RDS, not HD Radio).
The FM app will reportedly be able to function in the background to allow user to listen to radio stations while other tasks are being performed. The app will also reportedly extend song tagging capabilities to integrate direct iTunes Store purchasing. The holdup on this app is that Apple is trying to integrate the Mobile iTunes Store purchases into the functionality of the program.