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It was clear that when the iPhone was released most folks didn't get it -- this thing has virtually no buttons and will become whatever the software turns it into! That said - and I personally have no problems with this - the only limitations will then be available space and the speed of the apps.
Why doesn't the iphone do video? Well, with only 8gb of space (or 4gb) it would fill up quicker than a clogged bathroom sink. How much do you want to bet that the video feature arrives on the heels of a 20 or 40gb model? But this is great, as it gives consumers the option to upgrade or not without being completely left in the dust. And we can only imagine what cards Apple is holding up their sleeve... Bring it on!!