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I'm not sure sales of a phone and an MP3 player would be comparable to a outright gaming device. Apple should be weary too though, as Nintendo has all the capability to make a new handheld that does the things the Iphone and touch do. Maybe wise for them not to poke the bear.

A slightly smaller DS with a touchscreen on the front, a mic and erapiece like any other cell phone, which still opens up and can be used as a regular DS wouldn't be too hard to make. Nintendo could have it capable of communicating with the Wii/Wii replacement directly and be able to download thier VC games directly to thier phones. You could also speak to people over thier Wiis using Wii Speak channel. Basically the possibilities are pretty much endless and would put a serious hurt on the iphone.