Hey,
---
Consise summary for the lazy reader- If you just want to make a game. Get an existing graphics\game engine that suits your needs.
- If you want to make your own tech for personal enjoyment\growth OR nothing out there suits your needs, build your own graphics\game engine.
--
I'll chip in a couple of cents.
Firstly, to answer in a meaningful way you need to understand what's better for you. You need to consider if you want to learn and grow as a developer and develop an engine for yourself or you do you just want to get a game done as quickly as possible? Or is your game so radical that you need to develop a lot of tech from the ground up? Life is full of choices
Well sometimes...
Anyway.
If you want to develop your own graphics\game engine. Go with the SDK. You'll have all sorts of fun with OpenGL. In addition, I recall talking to a mini gore developer on IRC and they used the PowerVR SDK
http://www.imgtec.com/powerVR/insider/sdkdownloads/index.aspOr do you want some of this background tech done for you so you can get to the good stuff and building a game? In which case I hear good things about Torque for the iPhone. It has a world editor thingy majig I believe. Without knowing what kind of game you want to do, you'll have to evaluate it yourself and decide.
There's also Unity but that's out of your budget so I went go there.
There are other alternatives.
I use the Irrlicht graphics engine. You have to download the iPhone port from SVN and sacrifice no less than 3 furry animals to get it to compile but once you have done that it's a really easy to use. (It's scenegraph based graphics engine).
www.irrlicht3d.org My first game Impulse Soccer and Stair Dismount were done with it.
I sometimes see what Ogre is doing in this space. There's now an iPhone port but it doesn't appear to be production ready. Keep an eye on it, it might be a good choice when devices with shader capabilities are the norm.
www.ogre3d.orgThen there's oolong
http://oolongengine.com/. It's an interesting one to download and see how things are done. It has an example with the bullet physics engine. If you're a newbie coder I'd probably avoid this one.
The guy who wrote the bullet physics engine released a gamekit that works on the iPhone. I haven't looked into it.
http://code.google.com/p/gamekit/There's also sio2 but I've haven't really looked into it.
http://sio2interactive.comThose are the main ones I know of. There are probably more.
So basically. Be honest with yourself. Do you want to write a game, or do you want to write game tech and then a game. I prefer to work with an existing graphics engine and build my own generic framework around it to use in multiple games. I think a lot of people burn themselves out in the background tech and don't get around to the game side of things. But I don't know you. So you have to pick your path.
EDIT:
I forgot to mention, it'd help if you give us and idea of your skillset. Are you comfortable with C++? C#? mouse clicking? That's another important factor to consider. However for the iPhone you're pretty much going to need C++ or Objective C. I hear unity uses Javascript but that's out of your budget. However, Flash seems to be coming soon...
Bino