Well, PD, while I feel it's too early to say how well the iPhone will fare in the market, I think the initial model will do well enough to at least warrant a second edition.
You see, Apple knows it has a decently-sized market chunk of diehard fanboys that worship the company, and they can count on those fanboys buying up the first batch of phones, making the initial "wave" a success. What happens after the initial splash has a lot to do with reviews and word of market and whether Apple is capable of delivering on some of its promises. Either way, I think the initial fanboy fueled success will give them the go ahead to put revision 2 on the fast track.
I think if Apple is smart, they will realize that they have to chop off about 200 bucks if they want this baby to go mass market, and if they realize that, I think rev 2 will be th e"mass market" iPhone. It will cost less, and maybe it will have the best possible available technology that will get it in peoples' hands for 400 dollars or less, even if that means a slightly slower processor or whatever.
Of course, cell technology moves lightning fast, so I'm sure a lot of things are planned and then immediately scrapped. I'm sure the lengthy dev time on the phone was a result of the fluxy market.
Anyway, it's going to be interesting to see what happens when a big, established company tries to break into a market where there are a few big dogs that are more likely to buy out and merge with competition than to actually try to compete.