Here's the real situation from the front lines at AT&T.
I love the iPhone, because it gets more people interested in smartphones/more powerful mobile devices. I ask every customer that comes about what is so interesting about the iPhone. Most of the people say internet or apps. I then go on to explain that every phone can be used to get on the web, going into more detail about what excites them.
Most people are either adults that want e-mail access, and occasional news/weather, or kids wanting to use social sites. With the exception of a Facebook native app, I've been selling more Blackjacks and Pantech Duos this month when they see they are cheaper upfront than the iPhone, can add thousands of apps, and costs the same per month as the iPhone.
I love the iPhone, it's such a great leader for some really nice devices.