Try taking a look at an app named Spectacles ($0.99 by Mach One Mobile) if you have an iPhone 4. It will both magnify text and optionally use the LED of the iPhone 4 camera to illuminate. Here's a link to one of the posts from the viphone list that discusses this app: http://groups.google.com/group/viphone/msg/c1f171bdc40bc901 The post describes how to activate the LED, and contains the earlier post from the person who found this app.
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Spectacles magnifier app with light
iSeeClearly
The App Store Pundit Podcast featured a magnifier app today. It was called iSeeClearly, and sounded quite good.
I was going to try it, but was put off by the $2 price tag, the fact it has not been updated for a year and the lack of reviews in iTunes.
Link to App Store Pundit Podcast
Link to iSeeClearly in App Store