Yep, the cupcake update should be coming for the G1 soon. The nice thing about android is that I can look at the change sets and see whats coming for my phone. :)
Q1 2009
Input method framework (IMF)
This feature will enable support for input methods other than physical
keyboards, for example soft keyboards. IMF will also enable application
developers to provide IME (see below) applications based on the framework.
Input method engines (IME)
IME will support soft keyboards, a dictionary of suggestions, and a
suggestion algorithm. The Android platform may contain a few reference IMEs,
and developers can provide IME applications through the Android Market.
Personally, I'm looking forward to something like Palm's old Graffiti for quickly entering a bit of text without having to pop open the keyboard.