Their focus on iPods was due to the massive revenue they brought in. Now that belongs to the iPhone and focus has shifted to that as its their biggest revenue source of all their devices.
That's not entirely accurate. It won't go through the first set up process, but if you stick a SIM in the phone and then take it out after you set it up (you can just skip through the set up screens until you get to the home screen), you basically have an iPod.
Apple basically needs to separate the iPhone activation process from service. It should basically operate like a cellular iPad. Activate it without cellular services, it's basically an iPod touch. Stick a SIM card in, and it becomes a phone. Nice and simple!