Apple knew as they were releasing the iPhone that the iPod Touch was on the way. Since the feature set of the iPhone and the iPod are so similar (minus the came

Apple knew as they were releasing the iPhone that the iPod Touch was on the way. Since the feature set of the iPhone and the iPod are so similar (minus the camera and the phone, basically), Apple would have a hard time pricing the two devices too far apart from each other. While the iPhone apparently was worth the premium for a lot of people, in the DAP market no one's going to shell out $500 for an mp3 player. Ultimately Apple will sell more iPods and more iPhones with the price drop.