Kiddy Paint! Free This app is great for kids and adults alike - creates a painting canvas out of your phone. There are 14 colors, each of which can be used at 5 different degrees of saturation/density. Also control the thickness of the lines and style of drawing tool.
Paint Joy - Movie Your Drawing This fun app allows you to draw a picture with your finger using your choice of many tools - and then show your drawing process as a movie. Lots of colors and you can import images.
Multi Touch Painting Demo There are lots of effects you can use with this paint program, and tons of colors - but what's coolest about it is that you can draw/paint two lines at once and do other nifty tricks that make use of multitouch functionality.
Glow Paint Only 10 colors, but they are *so* cool. Draw neon, glowing images on your phone's screen. There are templates and template patterns you can use - or make up your own from scratch.
Oil Paint This app allows you to change any drawing or image in your gallery to an oil painting. Nifty effect.