I think for the average casual users, may be.
I had an iPhone 3G and I now have an iPhone 4, but I still went out and bought yet another PND (TomTom XXL 550TM) lately, even though I have a Garmin Nuvi 750 (but mount and cable stolen lately), plus other devices.
-- While driving, it's hard to see text such as labels for roads, on the 3.5" iPhone screen; and even if you can see it while squinting, it's not safe.
-- iPhone screen and audio will yield to any phone calls, including incoming calls; and no navigation aid during the calls. If you are relying on the navigation at the time while a call came in, you would have lost the aid and so you might miss a turn, an exit etc. Even if you ignore the call, the app will be interrupted for the time of the ringing. This is even true on the latest 4.1 OS on the 4, and with the latest TomTom 1.5 app which is fully 4.x multitasking compatible.
-- iPhone internal speaker is weak, especially for in car use. Sure you could route the audio to your car stereo but then you'd loose the capability of using your car stereo. Sure you could use your iPhone for music, but if you want to listen to radio (such as a traffic report), you would have to use a streaming app, but that is only if you have a data plan, and also within data coverage (e.g. if you are roaming in the US, data roaming would be very expensive).
-- Most apps for phones that I have seen / tried, have limitations on functionality on using the navigation app. It is either unavailable or much harder to achieve if you want custom POI (I found no method of loading it on the iPhone app while it is much easier on the PND while both from same company TomTom), track logging (Nuvi 7xx has it), uploading or downloading of routes, waypoints, tracks etc (within the app, I know there are apps that can do those things specifically).
-- Before I got the iPhone 4, my iPhone 3G constantly runs out of memory (RAM) so I had to clear memory (free memory), or even restarting the Springboard (respring), or rebooting. But that is only easy if you have the phone jailbroken and have tools like sbsettings installed. I have also used Windows Mobile device such as HTC Advantage, and the earlier OS versions would have stability problems making it an unsuitable platform for real time needs such as GPS navigation.
Granted, phone screens are getting bigger, and platforms are getting more stable. You might not mind not having car stereo playing the radio and thus can feed the audio through it. And future apps might add back those extra features that are on PND, but I still say that for the time being, I'd prefer to have a stand alone PND for this for any serious navi usage (such as a mid to long trip).
BTW, the iPhone 3G's GPSr sensitivity is quite low such that it is unsuitable to be used in landscape mode. Even in portrait mode, the sensitivity is sub-standard. (the 4 is much better, fortunately).
The market for PND is slowing down because most people do not need a PND, not because PND is not a good and useful product.
This is coming from someone who has used GPSr before PND was available on the market. I have set up car navigation using Toshiba Libretto mini laptop with external GPS receiver, running Delorme and Microsoft mapping software.
To answer the OT question, navigation software does not use cellular data if it is using offline maps (stored locally), unless it has some Live features such as traffic, weather, etc, and those use much less than maps. Online maps use server based maps and will eat up lots of data. I don't like those because you could be out of cellular coverage, or your connection could be bad and then your navigation goes with it.
And to the 2nd poster, besides the above answers, there are lots of reasons why smartphone nav apps are still not as good as those inside the PNDs. Sure the reason could be marketing decision, but still. So I'd flip the question around in that when would smartphone apps be as good, if not better than those on PND, so I don't have to keep both?
Why would PND become a smartphone? I know some products try to do that. For the record, I never use the Nuvi 750 for the photo viewer, MP3 player, calculator, etc, as I always have a smartphone or PDA with me, if not a computer. Why would those extra functions be important in a PND? They are just novelty and exactly I have used them as such, tested them out, and then never go back to those screens again.