I don't mind the protruding camera, especially if it offers improved specs as a result. I haven't heard anyone complain much about the camera on the iPod touch, and that probably protrudes more since the body is even thinner.
I doubt they would make it retract as some have wished, that would require even more space for the mechanism.
I doubt they would make it retract as some have wished, that would require even more space for the mechanism.