Remember the strange comment The Steve(tm) made a few years ago about being proud of the new products Apple has released, and of the products Apple didn't?
I can see everyone in Apple wanting to build an iPhone. I can see them designing it. I can even see Jobs being personally involved in every detail, and coming up with a phone that's seen company wide as absolutely perfect, and complete stunning.
And I can then see Apple looking at reality, sighing, and burying it in the giant warehouse of Apple products that never saw the light of day. There's just no way to sell such a thing, and doing so would undermine Apple's ability to work with other manufacturers to ensure it retains control over the media scene after MP3 players become obsoleted by large capacity MP3-playing cellphones.
There's probably a corner of the warehouse assigned to projects like this. You'll have to crawl through archives of the Copland source code and blueprints for future Apple IIIs to get there. Prototype dual-core G5 iMacs and a Broadway-based microtablet line a small clearing. There, the janitor has built something akin to a shrine, only visible to a favoured few. And yes, one of the slimmest, cleanest, most friendly cellphones is currently sitting there, with pride of place.