While Genius playlist creation is listed as a new feature in the release notes of the iPhone 2.1 Software Update, iLounge has confirmed that the feature will not appear unless the user performs a sync following installation of the 2.1 software. First seen on the new iPod touch, the Genius playlist creation button is supposed to sit below the audio scrub bar on the Now Playing screen beside buttons for toggling shuffle and looped playback on and off. Normally, the bar and buttons can be accessed by tapping the screen while a song is playing.
If the iPhone is not synchronized after applying the 2.1 software update, the Genius button never materializes, leaving a sizable gap between the shuffle and repeat buttons. The feature is also missing from the top of the Playlists menu, where it would normally appear. Synchronizing the iPhone with the Sync button in iTunes fixes this issue, bringing the button and menu choices back. (From iLounge)