This started as a reply to a forum user, but I thought I'd put it here for everyone to see.
I haven't done any work on the Power Meter app. I actually just bought a Cyclops Powercal which does a similar thing - it calculates power from your heart rate.
I actually don't think it's the most sensible approach any more as, when doing sprints or intervals on the turbo, my heart rate takes too long to respond and so the Powercal gives a too low reading. This is really only for short intervals - less than a minute long. Over a 20 minute interval the Powercal actually gives a pretty accurate reading.
What I have done in regards to power and the Elite Powermag is print a table of Power vs Speed. I found the power curve for the Powermag on the internet. I then translated this to a cubic function so that power is a function of speed. I then printed a table of power in the left column and the speed I need to do on the turbo in the right column, for each resistance level. I can then aim for a speed which will, in effect, be aiming for a power level.
The Elite PowerMag is really linear in its response to speed, so I can quickly interpolate in my head between two power values, e.g. the table says 200 and 250W are reached at 23.4 and 27.2 km/h. To hit 225W I know I need to be doing 25.3 km/h. Doing this also relieves some of the turbo boredom!
The power calculated this way and from the Powercal actually match up pretty well, either over 2x20 intervals or a 45 minute "sweet spot" ride (ride at just below lactate threshold heart rate).