The iphone will take off as a gaming device because it has all the advantages of a pc sans the pc's greatest flaws. The initial cost for the iphone as a gaming device is exactly the same as a pc: $0.00. You already have PC because you need it for PC things, just like you already have a phone because you need it for phone things, and the iphone is already one of the best smartphones out there. When you buy a pc or an iphone, you get the gaming device for free (unless you invested in a graphics card you only needed for gaming, in which that card counts towards your gaming cost).
The iphone/ipod touch has a fairly large base for only being on the market for about 8 months, and best of all, that installed base is mostly tech savvy, upper class, and young. Prime demographic for videogaming. Also, to say that the iphone will fail because it doesn't have buttons makes about as much sense as saying that consoles will fail because they don't use a mouse. The iphone has powerful controls, which is all that matters. As long as the controls have depth, games can be designed around it. Just because you can't play a vs. fighter on it doesn't means it will suck, any more than consoles suck 'cause you can't do RTS. There will be games on the iphone that will only be possible on an iphone. Also, the vs. figher is pretty much the only genre i've come up with that I really don't think is possible on an iphone.
The one thing the iphone doesn't have is hardware upgrading, which means that the platform is standardized, much like a console. Also, the decentralized distrobution channels on the internet allow for unprecedented amounts of piracy These are the flaw that hold PC gaming back, and the iphone has neither. Unless apple really screws this up somehow, the iphone will have a significant presence in the gaming world.