-> Yes, the iPhone (and iPod Touch) can be used as a hard drive, just like the traditional iPod, as Tom described.
-> The number of songs it can hold depends on the capacity of the device. Take the number of GBs it can store and divide it by 3 for a rough estimate of the number of songs.
-> Note that the iPhone is an MP3 player, a cell phone, and a PDA in some respects. You can store/access your calendar/address book/etc on it, browse the internet, type documents, install games, etc. Check out the Apple App Store for a full listing of the thousands of applications available. In some respects you can think of it as a 'portable laptop' with a smaller screen, inability to run Windows software, and various other limitations.
Hope this helps,
I've been trying to decide whether to purchase an ipod or an iphone. I was on BestBuy.com and clicked on a link that took me to Tom Merritts instructions on how to use your mp3 player as a hard drive. I've also been looking into getting a new back up system for files on my laptop. Can the iphone do the same thing? I have a cell phone I'm happy with, but want to get a portable music player. Can't decide which is better - and haven't been able to find any info on how many songs you can down load on to an iphone. So I could go with the ipod and use it to back up files or does the iphone have that campability as well and it will do all three? Or is it a case of, sure it can do all three - but it then it won't do any one thing well because you are asking it to do to much? Help!