Emoji is already built in to your iPhone.
To enable Emoji on your iOS 5 device (e.g., iPhone 4):
Home Screen > Settings > General > Keyboard > International Keyboards > Add New Keyboard… > Emoji.
That’s it – you’re done. Now, when you text or type, you’ll see a little globe icon at the bottom left of your keyboard:
Press the globe to toggle the Emoji characters. Different categories are listed at the bottom. Swipe left and right to see more in a given category.
There. Use your emojination.
(If you’re running an older version of iOS, either upgrade or try something else.)