This one took a while to figure out...
Step 1) Create the File.Save Service
Drupal will accept your image encoded as base64 and dump into an actual file.
Step 2) The iPhone will take a picture and then encode it as base64. I figured out that although the CocoaXMLRPC library will send the XMLRPC response with < base64 > tags, drupal doesn't know what to do with the info in those tags. This created a lot of 0 byte files.
The solution is to comment out the < base64 > tag in the CocoaXMLRPC and substitute < string > tag.
If everything works, you'll get a File ID (fid) back.
So construct your XMLRPC Request like you would with a text content type. Then set your Imagedata as one of the PostParams with the forkey 'file' and the method file.save.