I understand your technical point, but the iPhone followed up on iPod features and when it was announced, the concept was sold and received as if it was the future of iPods. (And it was.)
Erm isn't that what effectively happened?
Didn't we get a phone out of it? Except they're not made by MS.
Microsoft likes to build platforms where other companies manufacture the hardware(XBox excepted). That's why Windows/WP7 run on multiple OEMs hardware.
The theory is that competition among hardware manufacturers will drive down costs. Sure worked with PCs.
I guess MS felt that phones were more like portable computers and not like niche devices like the XBox.
Unlikely they will make an XPhone, because that would fragment WP7 games into those that support hardware input vs. those that don't, and making software that does both usually results in suboptimal results.
I predicted that Microsoft would turn Zune into a phone like Apple did with the iPod. This was before the Nokia mess.