The iPhone does support Closed Captioning. Tap General, then iPod, you'll see under Video to options. Start Playing and Closed Captioning. Once you turn it on, you'll be able download and view the Closed Captions in the movie located here on your iPhone.
http://idisk.mac.com/makentosh-Public/Giveittome_CCself.mov
There are a few movies on iTunes that show [CC] in their description, but I haven't downloaded them to try 'em out. Currently, getting CC's INTO movies are the hard part as there's no easy or inexpensive way to do it so far (The movie above was created by Israel Melendez). You can find a podcast with CC instructions at this iTunes link.
http://phobos.apple.com/WebObjects/MZStore.woa/wa/viewPodcast?id=123401561