7notes is a note-taking/handwriting recognition app for the iPad. It costs US$8.99; there is also a $4.99 iPhone version, along with feature-limited free versions. I spent several hours using the iPad paid version (7notes Premium) and found it did an excellent job of recognizing both my cursive words and individual letters, all done with my finger on the iPad screen. Handwriting recognition is not a trivial task, and 7notes has a very smart recognition engine.
The app also has a predictive engine which worked quite well, figuring out my scrawl and giving me some words that matched the context
