I am creating a syntax highlighter for the iPhone and in order to display text with multiple formats, I have sub-classed UIView and modified the drawRect:
method so
It may be best to draw your text within a CATiledLayer hosted within your UIView, in order to get around the 1024x1024 texture size limit (which appears to actually be 2048x2048 on all existing devices). For an example of text drawing within a CALayer, I'd refer you to the CPTextLayer class within the Core Plot framework. This layer (which inherits from the CPLayer class within that same framework) does cross-platform (Mac and iPhone) text rendering in a CALayer. You might be able to extend it to work as a CATiledLayer for longer text blocks.
One thing to be aware of is that platform-specific drawAtPoint: methods are used in this layer, instead of the CGContextShowTextAtPoint() function you are using. The reason for this is that CGContextShowTextAtPoint() only works on ASCII text, meaning that you can't do Unicode text rendering with it. There is an example of using CGContextShowTextAtPoint() to draw text, within a #define'd out portion at the bottom of the renderAsVectorInContext: method.