At first I disagreed with the rumor that Walmart will carry a $99 iPhone and I still do.
That said, this move is a pretty bold move by Apple. Understandably the $2 off and the prospective of a classy phone like the iPhone having anything to do with Walmart may seem like a nightmare or joke to many here.
However, this is psychological marketing warfare. It's still the same phone period. This move works in the favor of Apple for a couple of reasons. Well, for Walmart the discount is there because it helps Walmart keep it's "low cost" image. It also attracts "penny pinchers", (yes believe it or not a large portion of Walmart consumers actually cut $0.50 coupons and carry them to the store).
This move broadens the geographic placement of iPhone not only to locations where AT&T, Bestbuy, and Apple stores don't exist, but more importantly the product placement is key to consumers who wouldn't shop at an AT&T, bestbuy, or an Apple store if they were across the street.
Finally the psychological part ( and I say this from personal experience from casual conversations) , most people I talk to immediately comment to me "oh you have on of those expensive phones" , "I wish I could afford an iPhone" . My point is the common perception has become "iPhone = Big$$$" to a ton of people (certainly not anyone on these boards

) .
How do you help fight this consumer perspective? Stick it in a Walmart and discount by it 2 bucks. pure genius. heck it must not be one of them expensive elitist gizmos if they sell it a Walmart.
Example as a bottom line. If you were Apple and had a choice of selling the iPhone at either the Armani store or Walmart which would be better overall. I think Apple made a smart choice. Even in terms of image I think Apple could afford to shed off a bit of it's elitist image. Remember more iPhone's sold = more potential PC to Mac converts also.