The iPod Touch is the reason for poor iPhone sales in Europe.
Like most people I know, I really liked the touch interface, styling and non-phone features of the iPhone, especially the superb mobile browsing, but we probably all have phones which we're quite happy with that give us the communication features we need. Personally I use a Blackberry, which does an excellent job.
Now the iPod Touch has been released, I get everything that I like about the iPhone, but without the contract issues, so I have a Touch (an early Christmas present from my girlfriend) sat on my desk as I type this. Had it not been available, I'd certainly have considered an iPhone instead.
The Touch and iPhone are both very desirable pieces of kit, but I guess many people are quite prepared to put up with carrying two devices and have the flexibility and choice of mobile telecoms provider.