Samsung Galaxy Note keyboard software
The "Graffiti" writing technology from the old PalmOS devices is available for Android now, and supports letter at a time text input with a stylus (or presumably a finger). Graffiti for Android.

However, something like DioPen or PenReader seems to be more what you're after. They both have very mixed reviews, and do seem to be better on some devices than others, and take some getting used to.