I agree that Apple probably sees the iPhone as their netbook competitor - because the netbook market is not one market (duh) but several.

'My' slice of the market is the working-on-a-plane set, who value a 7 hour battery life, a good keyboard, low weight, and a big SSD that can survive a Turkish taxi ride - preferably while not being a $2,000+ mugging magnet like the Air...

But I'm not stupid enough to believe that the netbook market I'm part of is bigger than the slice who just use theirs to surf the Internet, and if you look at just that market the iPhone (or especially the iPod touch) is a pretty good proposition.