I pretty much agree with everyone to some level:
1) Put an apple badge on anything, make it sexy, and people will pay.
2) It works as a video ipod and an internet communicator - great screen!
BUT, I have issues with it not having a keyboard and having just my fingers to tap away at a virtual keyboard for data entry (no handwriting recognition? I assume this since Steve doesn't want us to use a stylus) - it may suffice for the occassional input of phone numbers, and the odd short text msg, but how about email, chat, or participating in forum discussions? And virtual keyboards take away valuable screen real estate when they're being used.
Also, that screen's gonna get awful smudgy with all that finger poking, no matter how clean and dry your hands are...and just a thought about style - can you imagine what you'd look like holding up one of those to your face?
Bottom line: Apple fanboys will buy it and accept its faults, and if I had the cash, I'd buy one for its video and internet features alone, and live with the shortcomings...but I don't think people will be giving up their treos, blackberries and nokias just yet.
That sound you hear? It's the collective release of nine million simultaneous geekgasms as the iPhone is announced. Here are my thoughts - please feel free to add yours.
1) Wow.
2) No, seriously - wow. The adaptable, dynamic interface, push email, photos, iPod video functionality, photos and ten thousand other things all in one device is absolutely incredible. Particularly in terms of the touchscreen, this, like the iPod, will have ramifications for the entire tech sector, specifically in how people conceive of the interplay of design, functionality and interface.
3) But - and it's a big one - did they just 'PS3' themselves? $600 US *with* a contract is an enormous amount of money. Like the PS3, it's 'worth it' in the literal sense, but is this so expensive that it will drastically reduce the rate of uptake? I'm not saying that the device itself is akin to a PS3 - it obviously offers something that nothing else does - but I sorta' felt like it was a huge buildup that led to... "six hundred bucks US?!". Are they out of their minds?

Chowhound
Comic Vine
GameFAQs
GameSpot
Giant Bomb
TechRepublic