Page 138 of the manual:
"The
following audio file formats are supported by iPhone. These include formats for
audiobooks and podcasting:
AAC (M4A, M4B, M4P, up to 320 Kbps)
Apple Lossless (a high-quality compressed format)
MP3 (up to 320 Kbps)
MP3 Variable Bit Rate (VBR)
WAV
AA (audible.com spoken word, formats 2, 3, and 4)
AAX (audible.com spoken word, AudibleEnhanced format)
AIFF "
http://manuals.info.apple.com/enUS/iPhone_UserGuide.pdf
You may be able to convert to a compatible format. Try searching help in itunes.