$199, not $299. 8GB is plenty of storage.
For my purposes, the closest alternative to what my iPhone does would have been an $800 PC tethered to my Treo EDGE cellphone as a bluetooth modem. No contest there, in price OR convenience. It's like taking off the old ball and chain.
My Treo let me escape my home office and still be able to handle occasional emergencies at the data center, but the small screen and rotten little browser were serious limitations. There's another Palm (the T|X) with Wi-Fi and a bigger screen, but it has no phone capability and so is not a real alternative for emergency support.
The Palm platform has over a decade of development of nifty little applications, but after only a couple of days looking around the iPhone App Store I've found replacements for all the ones that matter to me. (The one that took longest to find was "DataCase," which fills the need to read large documents. It's roughly comparable to Palm's "iSilo".)
The iPhone's "virtual keyboard" is taking me some time to master; I keep getting off-by-one mistakes, and I'd really prefer to use a fingernail or a stylus; the touchscreen tech they use doesn't allow that. You have to use a whole fingertip (or a special $20 "capacitor" stylus).
And yeah, the battery life sucks.
On the other hand, the screen resolution is simply great.
On balance, I see a slightly smaller and much cleaner physical design; a better web browser; a much bigger and clearer screen; EDGE, 3G, and Wi-Fi all in one package; and a genuine iPod sort of tossed in as a freebie. I was already on AT&T with a data plan, so the much ballyhooed "price increase" doesn't apply. If I had gone with the EDGE-only iPhone, my rate would have gone DOWN by $10/month; 3G is a wash.