Britney Spears and American Idol have huge numbers of fans as well. Some things defy explanation.

That said, the iPhone was really like nothing else when it was first introduced and for non-technically-discriminating users it is a great experience. Many people whom I know that have them are completely in love with them and the limitations noted are either unnoticed or, for the more discriminating ones, the device is still a net-positive experience despite the flaws/limitations.