The iPhone very well could take over the handheld gaming market, even though that isn't its primary function. When people aren't informed (ie the other 98% of "gamers" that don't read up on gaming websites), any kind of gimmick will get them. I'm not denying that there are good games on the iPhone, but because touch-screens are still so "cool" people will rush to get their hands on one.
Accessibility also works wonders, again why the touch screen is succeeding. Most of these people probably don't want in-depth games so they get a couple of games on their iPhone, which they bought in the first place as a phone.
Note: I generally hate Apple, namely out of their over-priced nature especially with Macs. I understand that some people might prefer them over PCs, and that's understandable, UI is more streamlined etc, but I don't see an extra $500 going towards a product solely due to the OS as being reasonable when a PC product with the same specs are cheaper (this is a hyperbole, don't rage).