I agree. The keyboard is not appearing at all for any of the languages. It basically looks like the area for typing text is using ajax / innerhtml and is not a separate html <textarea> or <text>. Hence, clicking on it does not bring up the iPhone keyboard.
I request Google team to create a separate mobile optimized version of the transliterator. (just like the translator) It should not be much of an effort..provide minimal features necessary, use <textarea>, easy switching between languages and set appropriate viewport based on detected screen size (320 for iPhone). This will greatly benefit thousands of people (the number is increasing..) who mostly use smartphones for the internet.
On a related note, is anyone able to see Indic scripts rendered properly on iPhone 3G or 3GS?
Attached are examples from Hindi and Telugu wikipedia on iPhone...the 'maatraas' / 'vatthulu' in the unicode letters are not rendered properly.