i can type by location...not by sight. therefore yes i have used the iphone without looking and it works fairly well. sure...having actual keys allows you to slowly feel around to find the perfect key...but i dont find the need to stealthily type often...lol
as for working out..yes, you could get a smaller cheap mp3 player for those rugged events...or you could get the arm strap for the iphone.
as for sound quality, only audiophiles complain about iphone sound....all normal listeners will say that it is good just like all the others.