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I'd say make the button like the Blackberry buttons that are under the screen. They give a slick look, but you still have to press them.
 
Call me old school but I just like my iPhone 4! The less physical features they change (okay, maybe a bigger screen... :D) the better. :p For me, at least.
 
I've always kinda hated capacitive buttons. Maybe everyone in the industry just makes them really badly, or maybe they simply don't belong on the front of the phone. I'm kinda hoping Apple sticks with the home button. Or at least figure out a way not to make capacitive buttons so annoying, although I don't think there's a way to do that.
 
I have had one of these since 2003

ipod1.jpg


It is a touch only ipod, using capacitive touch points as the interface (Pre Clickwheel). To this day it works great, and actually does a good job of ignoring spurious inputs. IMO it was the best iPod for longevity. I have had 2 click-wheel iPods develop problems with the click-wheel's mechanical "click" button function, but no issues with that 3rd gen iPod.

Apple has experience with capacitance, I think if it was included on the iPhone as a home button, it would be just fine.
 
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