The Chinese handwriting input on the latest iPhone/iPod Touch is a pretty impressive feature. But when using the Simplified Chinese version of this, you may find that only 4 character choices are given, so that if none is correct you have to start over. If you switch to the Traditional Chinese version, you will find a button over at the left which says 其他. Tapping this will give you additional sets of 4 choices, where you will probably find the correct one.
The lack of the 其他 button for Simplified Chinese is presumably a bug which Apple will need to fix.