Every time I think about switching to an iPhone for my daily use, I remember this. This is a huge deal and replaces yet another device I don't have to lug around while on travel. I've even stopped using my Garmin since the maps tend to be much more up-to-date and the screen is easier to type addresses on.
This is another issue that's been mythicized by Android users. There are plenty of great turn-by-turn apps—free and low-cost—that work online and offline. I've used MapQuest (http://itunes.apple.com/us/app/mapquest-4-mobile/id316126557) on my iPhone; worked great.
Not any more mythicized than any particular iOS feature. Mapquest is available for free on Android as well. It is a nice app, but it can't match the integration of native Google Navigation.
It really is funny though. I don't know a single person (and most of my friends are quite happy iPhone users) with an iPhone that has a turn-by-turn app.
The ones that do use a GPS drag around a Garmin, the rest just try and work with Google maps as best they can.
A couple did switch to Android recently, but assumed it too didn't have turn-by-turn and kept muddling through with Google Maps until I showed them how to do it.
I don't know why that is exactly, but it's weird and gives me a strange impression that this is a seriously omission from the platform. This acquisition is no doubt part of a larger strategy to bring this capability (probably in a wonderfully Apple-y way) to their mobile platforms.
Just as a data point, the TomTom turn by turn apps have been consistently in the top 5 paid apps over the last several years here in the UK. You could argue that's even more reason for Apple to provide their own solution of course.
It's a serious omission, yet everyone you know seems happy on the iPhone, and the couple that switched didn't even know about turn by turn directions on Android. Doesn't seem serious at all. (by the way, I know plenty of people that have iPhones, and the vast majority do have 3rd party GPS apps. The rest have no use for them.)
I agree with a previous commentator, this omission has been overblown. Yes, it will be nice when iOS comes with a turn by turn app that integrates with the whole iPhone. But if you want one now, you can buy one that works great.