In a demo of http://www.becomekodiak.com I have seen a Navigation key on the keyboard row (confessed to be inspired by Textastic). I would guess that it was inspired from http://worqshop.com/ but I haven't seen Workshop in action. I find it quite handy, as it doesn't take much space and can be quicker than arrows.
How it works: you press the button and then drag your finger in a direction - mouse cursor moves. Than you press the button again and mouse cursor moves again, now selecting the text.
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