Getting to the customize screen buried in the iPhone's app is pretty simple if you know where to look to find the right buttons. First, launch the iPod app on your iPhone. You will see four category buttons in the menu bar, along with another button marked "more" as you can see in image 1. Tap the "more" button.
This will give you a list of additional categories, as well as a button in the upper left corner marked edit. You can see this in image number 2 below. When you tap edit, you will be taken to the "customize" screen shown below in image 3.