I was going to save this for my second installment of iPhones missing features, but Crave beat me to it (damn Cravers!).
Another huge iPhone oversight, although it's probably due to technical reasons, is that it doesn't have a High Definition (16:9) display:
Add one more reason to: It appears that Apple's uberdevice utilizes a totally proprietary 1.5:1 aspect ratio. While that's wider than the standard square-ish 1.33:1 (4x3) aspect ratio found on older TVs, PC monitors, and iPods, it's 15 percent narrower than the 1.78:1 (16x9) screen dimensions found on most HDTV and DVD programming.
When Steve demo'd a movie ("Pirates of the Carribean, Dead Man's Chest") it originally filled the screen. But then Steve says "now this is a wide-screen movie so I just double-tap to watch it in wide screen. Or I can tap to fill up the screen, whichever I like." You can see this at around 46'50 mark in the MWSF07 keynote podcast.
When he switched to wide-screen mode the movie had bars at the top and bottom of the display. I think that Apple should have found a way to modify the pixels or use a different panel that supports true wide screen display of movies. Maybe they'll address it in iPhone 2.0.
For more information on letterboxing and aspect ratio, check out CNET's quick guide to aspect ratio.