It's really simple. Cameras in phones have gotten better to the point that the delta in quality compared to a point-and-shoot does not justify bringing a dedicated device. Image quality is roughly equal on my iPhone compared to my old point and shoot; the only thing it's lacking is optical zoom.
The old choice was between good(point-and-shoot) vs terrible (camera phone)
The new choice is good(point-and-shoot) vs almost as good(camera phone)
It's not that simple though as excellent camera phones already existed in 2007; the iPhone was just really lousy in comparison. Just look at the Nokia N95 for instance. This is the point I'm trying to find an explanation to. Was the lousy camera in the original iPhone simply accepted because America only had lousy camera phones (whereas the rest of the world had devices like the N95)? Or was it accepted simply as a way to minimise that it was a weakness?