Someone has has actually managed to use a jailbroken iPhone with a cross-platform, out source x86 emulator and have managed to put Windows 95 on an iPhone. They used an iPhone 3G for their initial test but are soon going to try it out on an iPhone 3GS where is should run significantly better.

Windows 95 running on the iPhone video:

It was done with the help of the Bochs emulator and an original Windows 95 images.
It is running quite slow on the iPhone 3G and takes 5-10 minutes to boot up but it is working!