Via this full post in RAIN by their very own Ralph Sledge:

Apple’s iPhone SDK (software developer kit) — recently released and highly-anticipated — unfortunately has several limitations which make the possibility of an Internet radio application less compelling than many had previously though. The biggest: initially, it looked as if it wasn’t designed to allow “background” processes on the iPhone. In other words, you couldn’t be listening to Internet radio and doing something else (texting, emailing, web browsing, etc.). Using the SDK also means that people would have to download and install your app (as opposed to the “click and listen” afforded by Windows Media Player or Flash on a desktop).

One way around these limitations is using the streaming method put forth by TVersity (which is what WMFU uses), FlyTunes and Musicradio.com. This method exploits a quirk in the Quicktime player on the iPhone, which allows for continuous streaming of a file that’s being written to on the fly. You’re limited to the spartan Quicktime interface —no song info, no visual ads, etc. — though you could probably rig up something to allow people to look at past songs. You still can’t browse the web at the same time you’re listening to music with this approach, but it appears you can do almost everything else — email, text, etc.

Read the full article for some more.