If Wal-Mart does become an iPhone reseller, it will make me think about Apple's long term commitment to quality because for Wal-Mart the only thing that matters is simply price; product quality is a secondary issue.
The iPod lineup is already being sold at Walmart -- I don't think you can argue that product quality has gone down because of that. I also don't think the iPhone will suffer quality-wise because of Walmart either.
Personally, I've decided not to give my own dollars to Walmart if at all possible -- but that doesn't mean that Apple should avoid them. And just because Walmart sells Apple products doesn't mean that suddenly Apple should be lumped in the same category as Walmart either.
Apple obviously recognizes that Walmart has access to customers that may never even see an Apple store in their life. They also see that Walmart sells a ton of cell phones. Therefore, they realize that to avoid Walmart because it's not upscale would be stupid.
I'm sure that Apple is working closely with Walmart to guide them on how to appropriately sell the iPhone. And I'm sure that there will be some issues that come to light early on. But seeing how Apple has worked in the past shows that all of this will be resolved -- if not, Apple and Walmart will go their separate ways just as they did years ago when Walmart sold Macs.