Let's start with the features published by Mr. Jobs.
- Safari, the browser shipped with iPhone, though being not equivalent with the one running on desktop Macs, handles the Google Web Toolkit including Maps, Mail, Docs, Pages, Analytics, etc.
- OS X, the operating system is not equivalent with the one running on desktop Macs, thus only apps designed for iPhone will run on it
- Apple is not to let 3rd party developers produce applications for iPhone
- The Bluetooth module of iPhone seems to lack the serial profile, which is used to connect to GPS receivers
Considering all these aspects, I imagine the mission of Apple's iPhone as follows:
Instead of supplying separate applications to fulfill the usual palmtop requirements (office apps, mapping, etc), Apple provides a fullfeatured web browser to utilize the continuosly growing spectrum of web services. No applications and static data to buy and periodically upgrade, but a gateway to the internet to do your business there.
Regarding GPS, most likely You won't need any. The same philosophy just mentioned in connection with software seems to apply for hardware: it is the network provider who specifies the position on demand.
Naturally, it is nothing more than assumption. However, I would be satisfied with such a package of features