The Guardian Observer has an article on the iPhone and why it is not innovative.  It is a very practical example of why companies have difficulty being continually innovative. 

As Naughton writes, "The iPhone is considerably less than the sum of its parts for one reason: it was designed by a company that has become a prisoner of its previous success at innovation."

There are several good books on this topic but my favourite is The Innovator's Dilemma by Clayton M. Christiansen.

The iPhone is almost just a (poorly chosen) brand extension.  I mean isn't this just a Motoral Rokr phone with Apple brand.  I hope that Apple does not go down the path of endless brand extension (i.e. Krusty Brand Sulphuric Acid).

The Apple Nano is an incredible device but it merely represents incremental innovation.  Apple did what it has already done, incrementally better.