Annoydio has a grid of pads which you can assign, manipulate, and play sounds. There are several built in sounds you can assign to any of the pads. In the Library you can create your own custom sounds using your devices microphone. You can also add custom sounds through iTunes file sharing.
You can manipulate the sounds by changing the frequency, playing in reverse, looping, adding effects such as distortion and delay. You can also change parameters such as attack, decay, sustain, and release.
You can connect a MIDI keyboard and play the current sound with full polyphony. On the iPad version there is a popup keyboard. Annoydio also supports Inter-App Audio as a sound module and MIDI device. You can use Annoydio as an instrument to add beats or effects to songs in apps like Garage Band.
Short demonstration video here http://www.youtube.com/watch?v=EzuQhLxMxeM