Nokia took the competition seriously, but made a single fatal error: it tried to evolve its low end platform into its high end platform. While that strategy makes complete sense in 90% of cases for market innovation, in the mobile phone industry--which, it turns out, was going through revolution--Nokia should have done the opposite. People often forget that Nokia still controls more than 70% of the worldwide phone market, and controlled vastly more of it in the mid-2000's. In 2007, they had no idea that 90% of industry profits would come from the 30% of the market that they were not focusing on.
You can't really fault them for that, because strategically it makes perfect sense. They regarded the competition seriously but had a flawed approach/response.
That being said, they had a bunch of half-assed hedges against their fatal strategy, like high-ish end platforms such as Maemo, Symbian's advanced versions, etc.., but in fast moving markets with extraordinarily complicated infrastructure/platforms, this approach does not work. You can half-ass evolution, but you have to full-ass revolution.
They realized this mistake fairly early on, but by then it was too late to develop a platform, and full-assing it would have put the company's core competencies at huge risk. So Kallasvuo was fired, Elop was hired, the company moved in with Microsoft, and, eventually, they married.