So maybe the case rated to 20 feet would be a good idea, since that would be about the limit of any usable ambient lighting (the iPhone is not great in low lighting, very noisy, and the strobe photos are not so great).
Very true.
In underwater photography gear, the housing is often several times the cost of the camera, so buying what might be a pricey housing (to fulfill the requirements of being good to 130 feet, and of allowing touch access to the screen controls) to produce an underwater camera system that at best would give marginal results seems to be a waste of money.
This used to be the case, but in recent years with the Canon's, Olympus's and Panasonic's of the world selling their own housings, frequently at less cost than the housed camera, I think it's financially feasible to see an iPhone housing in the ~$250 range.
For me, it would definitely be more for the novelty. I can see being on a manta dive in Kona shooting video (plenty of light from everyone else down there), surface and immediately email it to friends and family back home.
Would it replace my actual camera? Definitely not. But I take my iPhone out on the boat, so I could see dragging it underwater also.