Which, umm, is why it also retails for more than its parts cost.
I suppose the question is, why is the iPhone over $500 more than the iPod touch? Is there really that much hardware/software differentiation between the two to justify the increased price?
I suppose the ability to make calls and access data almost anywhere makes it that much more valuable to people, or they would not be able to price it as such.
It's amazing what happens when you price things according to how much people are willing to pay as opposed to how much it cost you to make.
A lot of it probably deals with a plethora of byzantine patents needed to manufacture a mobile phone.