Why would would they have made it when they made a deal with a GSM carrier? I'm just trying to understand that. The deal was signed before the device was made.
According to the WSJ and other sources, the timeline was roughly:
2005 early - talks begin with Cingular, not sure if will be phone or services
2005 summer - talks slowly begin with Verizon, no phone exists
2005 winter - ROKR disappoints, iphone team created, OSX port begins
2006 summer - talks end with Verizon, Cingular deal signed in three days
2006 winter - Cingular sees phone for first time
2007 winter - we see phone
So yes, the phone was only half-way through design when the Verizon talks stopped, and Apple went back to Cingular (ATT) to sign a deal.
Verizon never saw a prototype, only that Apple's ROKR collaboration with Motorola was pretty awful. No wonder they weren't excited about the idea of another Apple phone. Heck, even the most rabid Apple fans only expected a combination iPod / cell with a dialing wheel or similar.