The flip will likely to be better, but the iPhone 4 camera is no slouch and is one of the main bullet points for the phone. I don't like to repeat Steve jobs in his marketing talk, but I think this is one place were it actually came out rather true.
They didn't focus on bringing a high megapixel camera just to brag about numbers but seem to have use a higher quality lense and optimised their software better to suit the camera which produces the rather good (for a phone) videos and photos.