[metageek]

>Why does an iPhone cost more than an iPod Touch, a standard 2G phone and a 3G USB dongle? That's all the hardware is.

Currently, that's not true. The iPhone 4 has a much better camera than the current iPod Touch. Not sure if there are any other differences.

[eftpotrm]

OK, sorry, a generation out of date :-) Still, a 5mp lens/CCD/flash package, even allowing for miniaturisation, isn't more than a few tens of pounds at absolute maximum. There's still a hefty markup IMHO.