The iPhone has become like the iPod, everybody has to have one, even if it's crap. Apple is riding on the market success of it's iPod to sell the "desire" for the iPhone. It's the American way, "gotta have it just because everyone else has it".
It always starts somewhere. It starts with a great product. Whether it's "cool" or "shiny" is beside the point. It has to do well early on, and from then on it can snowball.
iPhones and iPods sell because they're great products. They're desirable from every technological standpoint for the simple reason that Apple's entire attitude about what happens from the time a user picks up the product to the time the desired action is executed, is reflected completely and consistently across all of its products. Apple's found the ideal combination between hardware and software, that "sweet spot" that consumers find so desirable. This supersedes everything else, even specs.
It's just that simple.