...Does the iPhone have one? I havent seen it in the Engadget interface walk through or anything... it should have one if you are paying $499 for it, or is one of those 'the iPhone dosent do simple things' matters like the ringtones and the Bluetooth file transfer?
Personally, I think video cameras and still cameras on phones are kind of neat but still largely pointless. If you want to take video, get a real video camera. If you want to take digital pictures, get a DSLR.
That being said...
Product pricing is not determined solely by the quantity and type of features there are. The Ferrari 599GTB has four wheels, an engine, a steering wheel, and it drives... and it costs $250,000. But it is a different animal entirely from a Ford Taurus... The engines are not mass produced, a single mold is made for each engine and hand-finished to smooth out all the pieces. The leather is stitched by humans, the chassis is largely assembled by humans and riveted, welded, polished, etc. by a very skilled team of workers with gaps between parts (door/chassis, hood/chassis, etc.) set to millimeter precision.
The engine parts are crafted as they are to ensure that the vehicle can continuously sustain velocities above 200mph... even the valves take a few hours to lathe and polish... each.
Granted, the car costs as much as a house but try to find me a $250,000 house that is built with that much attention to quality.
Now, consider the manufacturing and parts that go into the iPhone... take a look at the casing. Aluminum isn't cheap. Zero draft molding (which results in those super-tight seams between the iPhone's parts) isn't cheap. Multitouch isn't cheap.
Now, try and find another phone manufactured to the same quality specifications as the iPhone AND featuring the unique multitouch input as well as the OS X User Interface programming/design that makes it the most intuitive phone interface on the market...
On top of it all, there's brand equity. People don't go shopping for a Ferrari because it's a cheap, fuel-efficient, economical car. People buy a Ferrari because it's a Ferrari... a name that represents a set of performance and quality standards. Likewise, Apple has achieved through the last ten years a status as a respectable manufacturer of quality computing products. Some people want the iPhone because it's an Apple, because it's going to be a device that feels and reacts more solidly than its competitors... and it is exactly that. Apple's reputation above all comes from robust industrial design and an unmatched user experience... The interface alone is worth more than a Treo or Blackberry.
A product is more than the sum total of its bells and whistles.
That is why iPhone costs $500-600.
