Somehow, I don't think that most of the consumers of music products are in their early teens. Electric guitars, amps, and guitar pedals are expensive, and I doubt most teens have that kind of disposable income. I went to high school in a pretty affluent suburb, and even kids playing in bands there rarely had anything but entry-level guitars and a couple of cheap $40 pedals.
From my limited experience (working in a record store, giving guitar lessons, touring with a band), the biggest purchasers of these items seem to be men in their 20s and middle-age married men with kids trying to recapture some of their youth or introduce their children to music they love.
That said, I'd like to see where Zed buys his pedals (guitar center?), because most of pedals that I've seen have pretty tame names, like the popular Korg series of effects pedals, or technical names, like Behringer CL9 or Boss AD3. The only one that I use that come close to what he describes have been ones from Death by Audio, and they're so great that I don't mind the funny names.
It is more complicated, you will need a hardware connection which I think is a different licensing world. Perhaps you can pull it off through the headphone port without extra licensing since both audio in and out are there and a switch.
Beyond that, I think it's a great idea. For anything other than a single function pedal, the user interface becomes a tedious nightmare. With an iPhone you have room and flexibility to make a nice user interface.
Plenty of horsepower in the phone, but you'd probably run the battery down in a few hours at full processing, so you'd have to plan on power.
I would envision the iPhone up on a stand or amp where you can see it and a floor box with the audio interface and a stomp button (in place of the headphone clicker button).
I like the idea of a stand-alone stomp box i/o port. This might make an interesting practice amp, too. Much like the Line-6 GuitarPort. I think the idea would be get the software started then license it to a Line6 or M-Audio.
I wonder what the iPhone's mic preamp sounds like.
I don't want to pimp my own stuff here but search Google, Youtube or Vimeo for pedal feedback loops or pedal noise. It's usually abstract drone or noise so not to a lot of people's tastes. There are a few businesses that have sprung up from making or selling products to these artists though.
Well, you wouldn't want an analog guitar effect pedal, but it's easy to get MIDI pedals. I don't know what you'd do with the MIDI, but the sky's the limit.
