Actually, the iPhone had a $200 price drop to $399 - what most of the fuss is about (the people who paid $599 for it within the last two months). So the phone component is worth $100 - well within the realms of reasonableness considering that one is getting much more functionality than a $20 phone.

To further clarify: there is a $200 REFUND for anyone who purchased an iPhone within 14 days of the announced price drop and and there is a $100 Apple CREDIT for all other iPhone purchasers.

So then they are admitting that they were overcharging then? Or were they not selling well, and lowered the price? I have a hard time beliving they are able to manufacture them for $200 les already............

I don't believe that Apple (nor most other technology based companies) sell based on manufacturing costs. I am sure it is a careful balance between market based pricing and manufacturing AND development costs.

Is anyone else puzzling over why the iPod Touch has such a smaller capacity? I'd love to play with it, but what's the point of getting that when I need so much more space? My 80 gig iPod got stolen last week (left it in the daycare van, unlocked in the driveway, not smart, but something we've done for years with no problem) so I'll be replacing it with the 160 instead.

The smaller models have flash-based storage instead of hard drives. The hard drives can have much higher capacity, at the cost of size and reliability.

I'd forgotten that part. I still wouldn't mind the size to gain the capacity though.

One thing I've wondered is why not put multiple flash memory chips in? Is this a possibility (from a technological standpoint)?

Sure, but again the tradeoff is physical size.

I'll probably get an iTouch sooner than later.

What really makes me drool is this story in today's New York Times.

Ooooo