Can a headphone jack power an LED?
You will need to use an op-amp or a simple transistor based level shifting circuit to light up an LED from headphone jack. The amplitude of the headphone output is simply too low to drive an LED. Look here, http://en.wikipedia.org/wiki/Line_level. Also hook up an oscilloscope to your iphone output to make sure of the voltage levels. 

And how would you want to determine the color of LED? It it is just the signal level, that could be easily accomplished with a comparator. If you want more sophisticated discrimination, like pitch or tone for example, you need signal processing circuitry.