A lot of people seem to have problems with iPhoto suddenly being unable to read JPG files. A lot of suggestions floating around, from checking sRGB declaration and permissions and corrupted iPhoto or disk and whatnot.
Here, the culprit is the iPhone. Doing a HARD RESET fixes the problem (in many cases).
To do so: push and hold the HOME + ON/OFF button continuedly. You will see the off slider show, continue holding until the device reboots and the Apple logo shows.
After this, iPhoto ’11 should recognize the files on the iPhone again.