My comments on the target market, are based on several considerations one of which is "product placement"I think you're wrong in your speculation of his "target audience".
Just my opinion.
I also think that 500$ is a great price for THIS phone. Not a RAZR, but any phone with the features, interface and elite design that the iPhone has, is worth it, to me. The fact that they may very well sell the phone for 500$ even WITHOUT a contract, to ANYONE that wants one, is going to provide market penetration like the RAZR saw. The fact that you're paying 500$, that's it. No subsidized BS.
Often in nearly any movie if a laptop is pictured, it's usually a Mac. A particular movie that comes to mind from a few years ago was "You've Got Mail". Meg Ryan used a PowerBook and every time there was a shot of her in front of it, they made sure it was in the frame with the Apple Logo lit up prominently.
Interestingly, her co-star Tom Hanks used a ThinkPad, yet every time he was shown at the computer, the logo was blacked out. This was certainly not by happenstance, it was Apples willingness to pay to have their product "out there" in front of the public.
Therefore I believe that Steve Jobs will want the same exposure for the new iPhone.
That said, I agree with you as well. You have brought up some very valid points. From my perspective you are right on, in terms of the value at the current price. There is no question that this is a milestone product and I for one, am very interested in watching how all of this unfolds.