Check out http://www.airsquirrels.com/ they have an app that let's you mirror your iPhone to your desktop. It's very smooth. I use that, and then use a standard screen cap tool to capture the screen on OSX. Result is the ability to do full app demo on your iPhone and have everything mirrored to your screen. Also handy for sharing via a projector... Since it all goes over AirPlay you can demo without needing a cable/dongle off the iPhone.

For that demo, we used the iOS simulator app that's part of Xcode, along with normal screencapture tools (Screenflow in this case). I think that's the way most iOS devs do screencast content, though jailbroken devices can also do native screencapture.