Steve Jobs is craftier than I gave him credit for.
Remember Steve Jobs Wants to Eat Firefox! from last year? I thought he might be crazy, or playing the CEO chest-thumping game he and Larry Ellison have raised to a twisted art. Now I realize I hadn't seen his strategy at all.
Shashwat Parhi almost had it right in the comments. The iPhone was worth delaying Leopard for several months (and that giant sucking sound you heard from Cupertino in early 2007 was the best developers leaving the Leopard team for the iPhone team) not because phones are cool and tactile feedback is less important than the shiny, but because the mobile Internet is Steve's best new shot at taking over the world. Safari won't replace IE or Firefox on the desktop, but Apple's strong bet is that the Internet in your pocket will replace your desktop, at least for certain uses.
Sure, Windows CE has a few phones, but who cares about Windows CE? The apps aren't broadly compatible and the familiar Windows interface isn't compelling on a mobile device.
Apple has the right to make this device and to bundle it with AT&T's service. The market is free. People are free to choose the device as well. I have little interest in participating in a market that disempowers users to take control of their own computing experiences. (Please spare me the argument that you love the UI or that it does exactly what you want to do. That's fine. It doesn't do what I want to do. Shouldn't that be fine too?)
I don't believe all of the arguments I've heard for restricting the software you can run on the iPhone, however. Either viruses and malware aren't really the reason to vet every app for $99, or Snow Leopard will only install software from its own store. Surely the point of a mobile Internet device is to have the kind of always-available, general purpose computing connectivity that a notebook PC offers these days.
It's a nice device, and the demo apps Dylan showed me are very tempting. Yet I've spent too long recovering from the bad old days of vendor and service lock-in to let a shiny touch screen and rounded corners tempt me to giving back control to yet another software/hardware/service vendor combination. It'd be a shame to have invested so much in freeing servers and desktops to lose all of that ground for new technologies and opportunities. Here's to a freer future from the new Nokia, Moblin, OpenMoko, and (wait and see) Android.