One thing I've found helps a lot is to just allow yourself to finish a word with a mistake in it and hit space, assuming the auto-correct will get it right. It feels backwards at first, but I think "scrolling" or "backspacing" through text requires a lot more of your attention/a context switch than just correcting at the end of a word.
I guess that does seem a backwards to me, probably because I don't type all that much on my iPod touch. My inclination has been to wish there was an option for the autocorrection to be a little less auto, offering a suggestion but assuming I meant what I typed and requiring me to explicitly accept the correction. If I did more text entry on the device, though, I could see myself coming around on the matter.
When I try to type quickly not even the iPhone knows what the hell I meant to write. :)
And that doesn't help for words it doesn't know. Turning auto-correct off might actually be a good idea for me. I'll have to try it and see if I like it any better.
One thing I've found helps a lot is to just allow yourself to finish a word with a mistake in it and hit space, assuming the auto-correct will get it right. It feels backwards at first, but I think "scrolling" or "backspacing" through text requires a lot more of your attention/a context switch than just correcting at the end of a word.