Built in free 3G for the win
I think this Kindlesque built in 3G will be a win for them - firstly it should get rid of the piracy problem at least for a while, meaning all software can be authenticated on-line. Secondly, yeah an iPhone might be great and all but the more causal user and kids aint going to be signing up for a £40 per month O2 or Vodafone contract are they in order to have a data plan.
As for the iPod Touch not having monthly on going costs and cheaper games - well the lack of 3G will become a disadvantage soon and while the games might be cheaper - but I'd rather play Mario Kart, Professor Layton and Zelda on the train than a port of a 16 bit Sega game with crap controls or mess around with a fart app!
If I was more into puzzle games maybe an iPod Touch would be a goer. The Popcap games seem to be doing well. Without a d-pad and buttons though, it limits the types of games that can work well on the system. I haven't tried playing one. but how well do fighting games play on iPhones? I cant imagine any button masher would be a good experience and might even result in broken screens! (if you really do mash buttons like I do!)