The most encouraging thing about the iPhone is that Apple seems to be listening to the feedback of customers. The price cut rebate was handled well — and expeditiously — but compared to the other issues it was an easy fix. Other than various functionality, which I am sure will be continuously improved, the two big issues remain the applications and the network.
There are four kinds of applications. First are the "standalone" applications such as the calculator, calendar, photo gallery, clock, and offline email. No network required. A second type could be classified as “networked” applications. Examples would be stocks, weather, over the air email, and YouTube. Each of these is a combination of a standalone application plus a network connection — either via AT&T’s network or from a WiFi hotspot. A third type of application is a networked application which works only with WiFi. Example being iTunes. The fourth type is the "webapp" or as described by Steve Jobs "Web 2.0" applications. The webapps work through the Safari browser. There will surely be many useful webapps but there are two important limitations.
First is that webapps are most useful when they are connected to the network, preferably a fast one. The presumption with webapps is that the data — travel itineraries, frequent flier numbers, healthcare information, personal financial information, etc. — is on the server. That model only works if you can get to the server. Some people 8 gigabytes is not enough to have local data in addition to music and pictures. I think many people would happily make the tradeoff to have a bit fewer songs and have some accessible local data. the 8 gig limitation is only temporary as we will have a terabyte of local storage before long.
The other limitation of webapps is the interface. In theory you can do anything in a web browser but the human interface is not always ideal. That is why millions of people use Quicken instead of quicken.com. This will change over time as web standards evolve but in the short term I believe there is a rational need for local applications. A perfect example is Navizon which is a software-only wireless positioning system that triangulates signals broadcasted from WiFi access points and cellular towers which pinpoints your location and then launches a Google Map to show you where you are. (This is one of the third party applications that Apple erased with their recent firmware update). There are many applications that could be local applications with local storage on the iPhone. Both the app and data could be synchronized (backed up) through iTunes.
There is no doubt in my mind that enabling third party local applications on the iPhone as a supplement to webapps would be a great thing for Apple. I also have no doubt that Steve Jobs thinks so too. Apple announced this week that they will have a development kit available in the first quarter. This will spawn a flood of new iPhone applications. If anything, I believe Apple underestimated how many developers, in addition to the high-end personal digital assistant users, would take quickly to the iPhone and start building third party applications. Mr. Jobs says they need the time to make sure there are tools to enable the local applications to be built in a way that protects against viruses and other malware. The hubris of wiping out the third party applications was not a good move, but as I started this story I do believe Apple is listening and I am optimistic that in a matter of months we will see a lot of very useful and exciting applications emerge for the iPhone.

• Other patrickWeb stories about the iPhone