Not sure if folks are being a bit sloppy with updates versus upgrades.
Updates are typically bug fixes and similar issues. You had a version of java, Safari, BootCamp, Camera RAW , etc. and it was
i. buggy
ii. had a security flaw.
iii. missing a minor module to handle one of many funky devices.
No major new functionally being delivered. Probably would should have been delivered in the first place ( in case of the first two) or would have been delivered if the product had shipped now (e.g., similar range of current cameras/phones sync/interoperate with at date of ship.)
All of that is usually delivered through "Software Update..." on Mac OS X. (or via iTunes)
Mac OS X 10.5.2 -> 10.5.3 -> 10.5.4 -> ... etc. free.
Upgrades are something different. That is substantively new functionality and most companies make you pay.
Mac OS X 10.4.1 -> 10.5.1 -> 10.6.1 -> ... etc. not free.
(exactly the same model for Windows. )
The hocus pocus that Apple uses is that the expected upgrade costs are built into the iPhone pricing. Some of that cash is put aside and incremented used to cover the costs of the upgrades. (It is unclear if there was/is some kind of iPhone cash slush fund that sits around only being recognized later when it is "due" so pay taxes/expense on it later or it clearly just arrives later) That was much less hocus pocus when Apple was skimming a slice of the monthly bill along with AT&T. It was also clearly a "motivation" for why they should be skimming something off the monthly bill every month. That skim is gone now. It may be the case that AT&T pays for iPhones still partially on an installment plan and the money still trickles in from the bill but isn't technically part of the monthly fee.
There is a bit of bogeyman SOX made us make you pay for upgrades in what Apple talks about. More likely the opposite half here. They are doing something funky with the iPhone subscription money (e.g., make it wink-in at the speed desired to some extent so that quarterly numbers always drumbeat up. Microsoft did that for a long time too. The have such large amounts of stupid large amounts of cash floating around can nudge it slightly to get more even returns without grossly violating accounting rules. )
Turning the relatively minor updates on the Touch into money making activities is part of the iPhone hocus pocus, not standard practice.
What Apple wants is a subscription model where folks deliver up money ongoing basis. There was no monthly bill to attach to the Touch to so are riding on the updates (instead of the more widely spaced upgrades. )
[Edit: on muddle the waters thing I think Apple did was do an update but add some more apps to the touch. The goofy thing was that these apps probably should have been there in the first place. Needed no new development but were just artificially restricted to the iPhone. Whether that is an upgrade or update depends upon the point of few. Many folks would probably see themselves having already paid for apps that existed at the launch date for which Apple is billing R&D but just didn't ship. Apple can go Scrooge McDuck bean counter and say 'oh the touch was $10 cheaper because we didn't. It is new to the cost structure". That really has jack to do with SOX per se. ]
The other slippery slope Apple has at its discretion is what is "significant enough" to be an upgrade as opposed to an update. Usually in an update no software that you currently have should break or become obsolete. With upgrades that is more on the table. For example iPhone 2.0.3 shouldn't make you have to download a new version of any of your Apps (unless they were written to a bug/defect/flaw). On the other hand iPhone 3.0 may nuke some of your apps. So in the PS3 , Xbox , etc. (other embedded systems ) usually all you get are updates because backward compatibility is paramount throughout the life of the machine. May get a few new features but those are perhaps features that were running buggy on initial release and the vendor held them back for a while to get them right before release. (sometimes that will look funky because it is a big feature step....but happens. )
