After you have installed ManualCorrect tweak on your jailbroken iPhone you will be able to correct words when you tap on the actual correction without completely disabling AutoCorrect. This app makes the correcting process more manual. You can get ManualCorrect tweak from Cydia for free of cost.
You should note that you will need to have a jailbroken iPhone to install this tweak. If you don’t have jailbroken iPhone then you can follow the step by step instructions posted here to jailbreak your iPhone on iOS 4.2.1 with Redsn0w.