I found a thoughtful analysis on this by John Gruber, writer of the blog Daring Fireball. Highlights:
[A] defining characteristic of Apple as a company, today: They replace their hit products while they're still on top. Rather than building a lead over their competition and sitting on it, they just keep building. The best example of this was the introduction of the original iPod Nano. At the time, the best-selling iPods were the Minis. The iPod Mini was a smash hit product. And when Apple debuted the Nano, they killed it.
Most companies wouldn't even consider killing a product like the iPod Mini while it was still a best-seller; instead, they milk hit products for all they're worth and ride them out for years. (Exhibit A: Motorola's Razr.) One thing Apple could have done, but didn't, was continue to sell iPod Minis alongside the Nanos. Apple treats its product line-up like a product itself – it is designed to be obvious and easy to understand.
Choosing which iPod to buy is easy: Do you want to carry a huge library and/or play video? Get a regular iPod. Do you just want something small to play music? Buy an iPod Nano. Want something tiny and inexpensive? Get the Shuffle. No matter how risky it might have been to kill the iPod Mini while it was still the best-selling iPod, there just wasn't room for it in the line-up alongside the Nano.
(Compare and contrast to Verizon Wireless, whose chief marketing officer brags that they offer 18 different music-playing phones.)
The simple truth is that the iPhone user experience doesn't just blow away the experience of other companies' cell phones – it blows away the experience of Apple's own iPods. The biggest question, as I see it, is whether Apple plans to introduce iPods that are more or less just the iPod app from the iPhone (i.e. just music and video players), or iPods that are everything but phones, with Wi-Fi networking for email, web, and more.