One thing I left out... what I wrote was mainly a noise reduction point of view, not HDR.
If you want to compress the dynamic range to a 8-bit JPEG on the fly by making bright spots less bright and dark ones less dark the curves feature indeed should work for this (of course without the noise reduction from ISO toggling).
But you really need to provide a curve to tell the camera how to compress. Even if you achieved this by toggling ISO, you would still supply a curve. If you don't, the optimal mathematical solution for each pixel would probably be 50% gray. And to create an image with 10 million gray pixels we don't really need to read the CCD at all...
What ISO toggling would give you is an increased dynamic range (higher than our current 10 bits), but the mapping that range to 8 bits would still be best done outside the camera.
