The iPhone/iTouch is capable of some pretty nice 3D graphics already, and I believe there's still room for improvement. I bet once John Carmack releases whatever he's working on for the platform, it will be a measure of the real power in terms of graphics. But, although the system has a lot of power, the OS is a multipurpose OS with loads of libraries and it takes up most of the memory. It's not optimized for gaming purposes. Add to that the fact that there is no disk cache, and devs have to really think about memory usage.
I understand that the iPhone is hot right now, but it's actually the iTouch that Apple themselves are marketing for gaming. Parents are not going to buy iPhones for their kids, but some might buy an iTouch. Then again, kids have never been a target demographic for Apple, they have always gone for the people with money. But this time around, the real deal is that the apps are going to determine to a large part who and what is the target market. For kids, parent's could buy cartoons and a few suitable games to keep the kids happy during car trips. That doesn't sound all too bad, now does it?
