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GlingGling said:

Why would anyone pay over $1800 just to access the hardware?
(source: http://gizmodo.com/5015540/iphone-3gs-true-price-compared)

And without a contract $599 for the 8GB version or $699 for the 16GB model.
(source: http://news.cnet.com/8301-17938_105-9981676-1.html)

In this generation of iphone can't be a viable gaming platform. If people are shying away from spending $400 on a console that can bust a graphical groove, why would they spend $200/$300 more for Dreamcast on the go?

And don't gimme "it's a phone/multimedia machine too" because the demographics are different.

You just answered your own question. The comparable cell phones out there are in the same price range as iPhone, but won't make a similar gaming platform. Obviously people aren't going to buy the iPhone solely for gaming, or even mainly for gaming: it is a phone after all, along with a host of other things. But, way more people have phones than game consoles, and a lot of the gaming demographic is going to overlap with the iPhone demographic, so for them it may make sense to pay that much for a Dreamcast, iPod, Phone, GPS etc. on the go. I am one of them.

Then again, I don't know what you mean by a viable gaming platform. We'll have to see how it turns out, but I believe that after a year or two, iPhone will be the number 3 mobile gaming platform, right after DS and PSP. Other cell phones just can't compete with it.