You know, even if it is just a rumor that has gotten out of hand, and there was never any intention of making the iPhone - Apple would be smart to just go ahead and make one based on the rumors. With all the buzz and talk about it - its like free advertising. I think it would be an instant success for Apple.
Oh there
WILL be a cell phone from Apple ... Bet on it! And the odds are good for a Mac World launch or soon thereafter. In fact there will almost certainly be multiple phone models from Apple ... 1st a "phone enabled" iPod and then likely a smart-phone in late '07 or early '08.
Apple
cannot let the competition continue to build new and innovative cell/PDA/MP3 phones. The iPod is cool,

but the threat from the cellphone/PDA industry is real

(carrying one device
IS better than two). Apple has to respond! But that is good news for Apple fans (include me)! The cellphone market is
HUGE (see my post on cell marketsize) and Apple has clearly demonstrated that they can build cool looking hardware that operates on superior "easy to use" software. OS X.5
will be incorporated in many new Apple products ... phone included. At the risk of being flip ...
"It's the software stupid." This comment is not directed to anyone - just emphasizing what separates Apple from "the rest" and makes them the best!