The fact that the iPhone is currently an AT&T exclusive is a real turn-off to me. I think the price is about right for Apple and a fair value for what they are offering. What they're offering is a much more capable handheld than the typical smartphones currently on the market, IMO, with its full web browser and iTunes integration.
I wish they'd offer a Verizon flavor, as I am quite happy with my service from Verizon. When/if the iPhone gets GPS, I will probably be in the market for one. The fully featured web browser is the real draw for me... most smartphones have crippled mini browsers.
I used to be a big fan of Palm, but it seems that as Microsoft keeps making their handheld OS better, Palm OS just stagnates, and in this day and age where information is continually used and passed between apps, multitasking is a real must, something that Palm has never really gotten to. I'll have to visit an Apple store to play with the iPhone to see if they really nailed it.