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Mysterious thing about heat on a computer device- As long as the heat reaches it's temp stable point, and stops increasing, nothing bad should happen to the phone. You're hands will likely get hot though. The only thing that you need to worry about with the whole heat thing is battery life- the hotter the device gets, the more power it eats up trying to keep up it's processing.
Navigator does the same thing to me though- and it's sort of worrisome. I clocked my OG Droid to 1.1 gHz and used the navigator on that, and it got really hot too, so I wonder if it just gets so hot because of the stuff that is being used, The CPU is being intensely used, the GPU, the GPS radio, the phone and the 3G radio as well- and if you're like me, you've got it plugged in, so it is rerouting the power from the car to the phone instead of draining the battery (or whatever it is, its an anti-overcharging technique).