It turns out that the iPhone does support AVRCP - that's giving us the play/pause functionality.
But - in this support article it says:
iPhone and iPod touch (2nd generation) support pause, play, and stop for AVRCP
So - apple have implemented AVRCP - but just not all of it.
From the support article there is no indication if this is going to get updated - so I guess we'll just have to hope.
Update on AVRCP
As of iOS 4.1 the AVRCP support now includes ff/rw and next/prev so it looks like a complete support for AVRCP from that version.