Does one already exist that i just
missed?
No.
Can the the Droid's Arm Cortex A8
down-clocked to 550MHz (thanks
wikipedia) handle an Iphone?
No, but the CPU is not strictly the issue.
Performance wise the best thing to do
is write the app in C++, but for the
health of the system, would it be
better to put the iphone vm on top of
the dalvik vm? Which approach would be
better and why.
It is conceivable you could create an Objective-C implementation in C/C++ that could run on Android via the Android NDK, but NDK libraries have limited system access, meaning you would not be able to do much in Objective-C.
It is conceivable that your Objective-C implementation could run as a standalone application on rooted hardware, and therefore have access to more of the system, but then you pretty much aren't running Android anymore.
It is inconceivable to create an Objective-C implementation that will run on the Dalvik VM and have performance similar to a native implementation of Objective-C on the iPhone.
Note that I have not even discussed implementing the Cocoa libraries and such, as I have no idea how you could do that in reasonable time without copyright infringement, which will get you sued into oblivion (see: Apple v. Pystar). The only way to avoid this is a total cleanroom implementation, and the WINE folk will point out how they have been trying to do this for Windows for around 17 years and have had incomplete success.
If your goal is to write applications once that run across Android and iPhone, consider PhoneGap, Appcelerator Titanium Mobile, and similar toolkits.