see i was thinking about the same thing, and i agree it’ll get cheaper. but only down to about 400 bucks in the next 2 years.
as far as a “watered down” iphone for even cheaper goes, what would they take out to make it less money? a nano is cheaper than a full size ipod cause its got less capacity, a smaller screen and doesnt have hardware to play video. a shuffle is even cheaper because it doen’t have a screen.
but what do you take out of an iphone to make it cheaper? you cant have much less capacity, for it to be a phone you have to have those radios in there, so itll still go online and get email (you cant take out wifi until it has 3G or better, and by the point 3g is ubiquitous, public wifi would be more widespread and cheaper anyway, so might as well leave it)
like the ipod, there was only one product line for 3+ years. I dont see it being that long before the intoduce offshoot lines, i wouldnt hold my breath.