I bought my Mom an iPod Touch for Mother's Day so that she could use it to play games. That's really all she wanted it for.
At one point, she thought about getting an iPhone, but decided against it because she already has a cellphone with a really cheap voice-plan (which she rarely uses as it is), and has no need for an expensive monthly data plan with Rogers. Her current monthly bill is around $40 (including fees and taxes), and if she got the iPhone, it would be closer to $80. And Rogers requires a 3 year contract!
I really dislike AT&T- I may allow my contract to lapse and then switch to another provider that has a better network. As much as I love my iPhone, it really annoys me that I barely get reception in my building but people with Verizon, Sprint, T-Mobile, etc can use their cellphones anywhere, even on the elevator. Hell, if I want to make a call, I need to stand right next to the window or go on my balcony.