I'm on the hunt for these as well.. just jail broke my v1 touch and looking for some nice, juicy art and music softwarez
For drawing it's Brushes easily, I tried several apps, despite the fact everyone suggested Brushes, and came to the same conclusion. For effects I'm not sure what's the best, but good are; Photoshop Mobile or FLEX Photo Lab
Which is better: SketchBook Mobile, or Brushes? I found SketchBook Mobile is REALLY good, but I haven't tried Brushes.
I'd say brushes is easier to use, but sketchbook mobile has better options(for effects). for effects you kinda have to use a diff app 'cause they don't tend to come packaged. BTW you have to draw the effects yourself no holding your hand in any of these
Toonpaint is really cool. I like how you can cartoonize your picture, then color them yourselves. Honestly, everyone has been more impressed with ToonPaint than any other production application. It is not necessarily drawing, but it enables you to make your photos LOOK like drawings, then you can paint them. You can make some killer avatars with it. Maybe not what you are wanting, but I just wanted to throw out that I too love ToonPaint.