For a counterpoint, my start-up (me, my fiancée, and my good friend) started an indie GPS app at the tail end of last summer. We worked hard, did many iterations, built up our userbase, and now we have several top grossing navigation apps, and we are piling up cash in the bank.
We don't have a marketing budget. All we do is engineer and Tweet, and we have had steady growth. Now we are also licensing the mapping platform to a handful of other companies, and I'm guessing our revenues will double or triple over the next couple of months, again.
For all those deciding whether to do an iPhone app, it can be done. But pick a niche and plan to work harder than any job you've ever had, or it probably won't pay off. There may be a lot of disgustingly successful Fart apps, outliers in the game section, and the like. But there are also indie devs that make a job of it, and there is plenty of money in it for us too.
People like to say the "App Store" is a bad bet. The truth is, any start-up is a longshot, and the App Store is a fine way to sell software. We pivoted away from the web and Facebook because we found it too hard to monetize, even though we had strong traffic growth and we had won an fbFund grant early on. Different strategies work for different people - you just have to experiment, instead of basing your decisions on bad assumptions and never reevaluating them.