As mentioned by another poster (Sushi I believe), I also recently switched to the iPhone after over 10 years with AU. I was getting tired of the "dumbphone" offerings from the Japanese domestic makers.
Most Japanese cell phones do offer the Osaifu (Suica/Edy etc.) feature for electronic payment, but I was fine just using a commuter pass on the trains.
1-seg TV (when you're lucky enough to get a clear enough picture to view) holds no interest for me as most Japanese TV is not worth watching even on the big screen. Most Japanese I know that have it say they rarely, if ever use 1-seg.
For me, a "smartphone" means a phone that has an OS like Windows Mobile, OS X, Android, BlackBerry, WebOS, etc., the ability to download from thousands of free and paid applications, can sync with your computer (mail, schedule, data), and the ability to upgrade the phone's firmware and/or software (OS).
As the main Japanese carriers (docomo, AU, Softbank) offer new lineups three times a year (spring, summer, fall/winter), they feel there is no need to offer firmware or software upgrades as the faithful sheep will just upgrade to a new phone. That, however has been changing over the last couple of years since all 3 major carriers have implemented phone plans that either offer a low-cost subsidized option with the carrier covering the majority of the phone cost - and locking you into a 2-year contract, or the other option is to pay for the entire cost of the phone up front. Of course most users go with the 1st option, hence sales figures are going down as people don't upgrade as often.
The iPhone has given the cell phone makers here a kick in the pants and we are now starting to see more "smartphone-like" Japanese phones that include larger touch screens, QWERTY keyboards and better browsing features, but in the end, they still have the incomprehensible UI and limited applications to choose from.
Softbank has made noises about the release of a mystery phone in January with the Android OS. Maybe it will be the rumoured Google Nexus One - who knows. More competition offered by foreign smartphones here means the domestic makers have get to off their butts and pay attention to what consumers want (not just more useless features and complex menus).
As for the visibility of the iPhone in Japan, as others have mentioned, the clam-shell (flip type) phone is most popular, allowing for easier use when on the train etc. And, one statistic not as widely known it seems is that a large portion of Japanese iPhone users purchase it as their 2nd phone. They still use their regular "dumbphone" for mail and calls, and the iPhone for Internet browsing and apps (Japanese "keitai" sites are not browsable on the iPhone).