@Will
Ok, I'm going to bite on your comment, "I don't respect anyone's argument on this unless they've actually used the thing in a real world situation for a decent length of time." Firstly, you in turn don't identify which smartphones you are comparing against, I've had mixed experiences with many phones - some are downright awful, some very very good. By not identifying which smartphones you are directly comparing to the iPhone your own analysis fails your own test.
Now, onto the subject matter at hand. Personally, I've never liked any of the Apple products, I find them all just a little too like something you would buy from Toys'r'us. Nice as a toy, but pointless in the real world. Having said that, I can understand why so many people like the iPod. Incidentally, I don't like the iPod for 3 reasons, firstly, I can't fit all my music collection on any available iPod; secondly, I don't really listen to music on the move due to sound quality issues; and thirdly, I don't like buying a product where the battery is going to die after a year and render the product useless. However, I can fully understand why these are specific issues for me, and therefore accept that the iPod probably is a best of breed product in it's class.
Now, in keeping with how good the iPod is, I decided to eat my own words and try an iPhone for a period. Fortunately, a friend had a 3G iPhone and was willing to lend it to me for an extended trial. What I discovered was, I believe, pretty interesting.
The plus side:
1) The basic iPhone interface does look pretty slick, and is generally pretty simple to use.
2) The UI metaphors for the web interface are actually top draw, once a page was loaded, you could move around it and read sections pretty easily. It was also clear that you would, over time, become even more efficient at it.
3) The screen looks fantastic, vibrant colours and very readable.
The minus side:
1) The whole things feels like a beta product. So many things just haven't been finished properly. Take the ability to rotate apps, the fact that it's only built into some apps is ridiculous - it should be a standard feature of everything. Also things like the lack of copy and paste - clearly QA should never have let the product out with such basic functionality.
2) Let's be fair, the keyboard is unusable for a large section of the population. I have pretty big fingers, and no matter how hard I tried to get it working it just didn't work ever. Now, I'm someone who learnt the old pen strokes for palm pilots, is happy with both old and new style texting, and has successfully used Blackberry and Nokia smartphone keyboards. I just couldn't get the iPhone keyboard to work. I'm not the only person to note this - a friend of mine has a 3G iPhone and still carries around a sidekick for texting/e-mail (after having a few weeks trying to use the iPhone for those features). Passwords are of course the worst since the auto-correction doesn't work on those, but my experience with the auto-correction was also pretty terrible.
3) The sound quality is as dreadful as the iPods (if not worse). For mobile sound not as good as the Sony products. But here I am a bit of an audiophile, and Apple have always been sub-par on sound quality.
4) The speed of the network (either Edge or 3G) makes the web totally unusable. Yes, it's a really sweet interface, but by the time your web-page has loaded, you could have found a wired computer and done everything you need to do. Ok, it's a lot better if you have a profusion of Wi-Fi hotspots to go to, although the Wi-Fi can be a beast to set up at times (especially trying to use that damned keyboard for settings) - see point 1 above. Basically the web interface feels like someone is trying to put a pretty dress on a pile of shit. It just sucks.
Now, what this means is that, for some people the negatives on the iPhone aren't that important. If you are happy with beta products, don't mind the sound quality of an iPod, have the right size fingers to use the keyboard, and either connect through Wi-Fi, or only load low-graphic websites and can put up with the speed, then the iPhone could be ok for you. But don't, under any circumstances, lay claim to it being the "best" phone on the market. There are far better phones than the iPhone around, it just depends what you want to do. For me, the iPhone just wouldn't work, for others it will be the best thing for what they want to do. Having said all this, I can't see it penetrating business at all, despite where Jobs is trying to pitch the 3G version.