I decided on Dan Bricklin's Note Taker HD as my note taking app. It is an amazing app with a lot of features, including:

free hand input
free hand input with shapes
a zoomed mode that allow you to write in a larger space (hard to explain, go try it)
PDF annotation
image annotation
and much much more

It is by, I would say a software artist, Mr. Dan Bricklin of VisiCalc fame. What's not to like? However, I was having a tough time writing on it with my finger. I was at Office Depot and I decided to pick up the only type of stylus they have, the Targus stylus. This is the rubber tip type, not the foam tip type. I actually like this better, and now I can really make hand writing notes on the iPad.