I have the exact same problem. XCode will convert PNG images so that the header chunk is CgBI (instead of IHDR), and that confuses 3rd party libs like libpng, since a character in Apple's header indicates that the data is in a private format. This operation only takes place for the target device - the simulator is unaffected. There are 4 ways to work around the issue (from easiest to hardest).
1) Rename your images to something else (eg. .ppng), and the XCode packaging tool will ignore your file.
2) According to the following link (
http://www.imgtec.com/powervr/insider/sdk/KhronosOpenGLES1xMBX.asp), you need to add the following build settings defintion for each target. IPHONE
OPTIMIZEOPTIONS=-skip-PNGs I'm embaressed to say that I still haven't figured out where in XCode project settings to add this.
3) Teach your PNG decoder to handle Apple's CgBI format.
4) Use the Cocoa UIImage classes or the Texture2D.m class.
