I saw a video at some point recent. In the video, the guy had an app that would replace certain phrases with other phrases.
I type "afaik" and it replaces it with "as far as I know".
My iPod is a gen2 running iOS v4.x and jailbroken.
Another option (on iOS 5) would be shortcuts (Settings -> General -> Keyboard). You can add shortcuts and replacements as in your example. This is probably the best solutions as it is free and works in all apps. (TextExpander works only in some, that explicitly support it.)