In iOS 3.1.3 and under, On The Go playlists can only be created one at a time and you have to sync to iTunes to keep them, but they automatically get erased if you restart the springboard or iDevice from what I've seen.
In iOS 4.x, Add Playlist lets you create more than one playlist and they're permanent, but you can swipe the playlist on the menu and just delete it with a tap.