Anyone remember the Newton?
I think everyone back then (well everyone who loved Apple) said that it was the next big thing and how it would ultimately take over the world. Oh how wrong they were.
Trouble is with the iPhone is its just too big and this is the main reason why people who have a blackberry also cart around a normal phone. I for one would much rather carry around a normal (read small) handset and my trusty Zen Micro 4gb is plenty for me - its easy enough to swap music around afterall).
Apple will still be faced with the other issue that does put people off iPods and that's locking them into iTunes and making them re-convert their entire library - er, no thanks.
That beautiful x-black screen the iPhone sports will soon look pretty shabby after a 20 minutes conversation against a sweaty cheek mid-summer and I think the rest of the phone will quickly loose its shininess. Phones take more of a hammering the mp3 players.
And what of battery life. The mighty Nokia's having a hard time with the N95 because with lots of apps running the battery life is under a day. People won't put up with that from their phone.
There will be bugs, again look at the problem Nokia have had with every 1st gen release since the 6110 (do they still make those? :) ) and networks are notoriously bad at helping customers with their bug-ridden monsters (look at Orange with the 7110) - not my problem mate is the usual customer service line - no 12 month warranty on a bugged mobile I'm afraid.
I could go on but I think you get the idea. Brilliant in concept but doomed to failure I'm afraid...