pjkelnhofer said:
I have to disagree with some of what you say. For one, people are not replacing their digital cameras with cellphones. The main issue is quality.
Hmm, I see your point. I do agree that people won't replace in all their cameras with combined gizmo... Not right now at least. I myself is a good example of that. I have just ordered a new point and shoot Leica.

However, low-end cameras are gradually being pushed out of the market in favour of combined phone/cameras. As the digital cameras and phones become smaller at constant quility, a larger fraction of cameras will be replaced by a combined gizmo. The main reason is physiology. Our hands and fingers can't cope with too small gadgets.
The quality of the cameras in cellphones has improved radically and will contiue to do so. As an example: Nokia has a long term exclusive contract with Zeiss optics. That is a far cry from the piece of plastic that constituted a lense in the early camera/cellphones.
Apple shouldn't make the same mistake as Hasselblad and Leica. They basically underestimated the speed of the evolution of the CCD chip, which made them believe that it would be many more years before a digital camera would be able to compete with high-end "film" camera. Bad mistake.
pjkelnhofer said:
Would you rather have one gagdet that does everything or several that are all well designed?
I think a majority of people like the iPod because it does one thing really, really well. If the phone features are sub-par it will stop people from buying it as an mp3 player. If the PDA features are weak, then people won't buy it to be a phone, etc.
Just as in the case with the iPod. It is all about making a user-friendly interface. The company that manage to do that will take more or less the entire market, just as Apple did with the iPod. I don't believe that we will see a camera/phone/mp3/pda/gps... emerge out of the blue, but rather a not-so-slow growth in that direction. The handheld market is converging towards a trusted-best-friend with capabilities we can't imagine. For example, Nokia has the last five years done research how a cellphone can double as a creditcard. This research will pay off one day, be sure of that. My point is that companies like SonyEricsson, Nokia, LG, and Samsung realize how much that handheld market is worth and they would love to have a big chunk of that. Their best option to compete with Apple in the MP3 market is through a combined phone/mp3-player.
pjkelnhofer said:
Finally, how do all the extra features affect the battery life of your phone. I would hate to not have my phone when I need it because I spent the day listening to music, watching last night's tv shows, and surfing the web!!!
Compare battery life today with how it was a couple of years ago. Heck, just compare the battery life of the iPod. It more or less doubled between the 3G and 5G.
Moreover, more or less all cellphones besides the very low-end ones, have besides the phone capability a mp3 player (crappy UI) and a camera (low-end quality). As I stated above, the evolution is pushing things forward fast. There are already phones with 5Mpx cameras.
Or just consider SonyEricsson's W950i which is a tri-band GSM + UTMS cellphone with a touchscreen and 4GB flashmemory mp3 player. If THAT doesn't make Apple get of their asses I don't what will do.
Bottomline: If Apple wants to be a player in the MP3 market five years from now, they better come up with something fast.