I think what a lot of people forget to remember is that so much of the media we see is low res images online. Having grainless images small on websites means nothing when, in this case, the iphone could produce high enough quality for the web. Most clients look right past any technical issue and notice the girl, or the product, or the overall scene.
As for photoshop, this video shows you the photoshop and by most standards it is really really subtle. There is no liquifying, hair removal, elements added, lighting changed. The only thing done is some skin smoothing, extending of the background, and color adjusting. Photoshop def has it's place and is used 100% of the time on images you see in the commercial world (even on apple product shots) but it's not that big of a deal.
And about the equipment, you really could have done this whole photoshoot with probably $300 or less in photo equipment. I'm sure their tripod costs hundreds but with stuff you find at Lowes or Home Depot you can do quite a bit. I think that's the big idea behind this video. We are just lucky enough that they choose the iphone 3gs and not something like the Evo!