Hi everyone. I just thought I would throw in what I've been saying for long time.
First of all, the current iPhone camera technology is inferior. Try taking a photo of a fast moving object, such as a propeller or a car driving by. It will be distorted diagonally, producing quite an interesting (and fun!) effect. This is because the iPhone uses a really cheap CMOS imaging chip. While CMOS is great when done well, such as in expensive dSLR cameras, most consumer cameras use CCD chips that are faster than the CMOS chip in the iPhone and iPhone 3g.
I believe the next iPhone will feature major improvements to the camera. There will be a 5mp -ish camera on back with better glass, and a vga camera on front that will do video iChat. It will probably take video somewhere around 720x480 max in h.264.
Something else that would warrant them holding off on video, aside from battery life and storage space is the memory and the microphone. Everyone knows the iPhone runs out of memory at the drop of a hat with its built in 128mb. The next iPhone will have at least 512mb (hopefully 1gb), as rumors that it will use new processors (up to quad core mobile) combined with the lack of other core hardware updates from version 1 to 2 should confirm that it will at least feature more memory. In addition, we will most likely see a microphone that will be better at picking up audio that is further away. These two things will combine with the better camera, I believe, to produce the iPhone Video.
Also, I actually have a conspiracy theory going that push notifications will never happen. They are simply waiting for the next, more powerful version of the iPhone that will simply allow background processes. We're only about 5-6 months away from the next update.
Still no MMS, still no bluetooth profiles for music, probably copy and paste, probably a more responsive and accurate accelerometer, maybe something new we've never thought of to have in a phone. I also hope the camera will incorporate some of the new micro auto focus drives that are now available, but its unlikely. I'd actually prefer auto focus over video.
Sorry for turning this into a "next version of the iPhone" post. But Apple stages their upgrades in a way that makes the new features valuable upgrades so they will make more money. But that's why they have what...28 billion or so in cash?