That's what Apple said.
"People don't read anymore": http://www.wired.com/gadgetlab/2008/01/steve-jobs-peop/
I'm pretty sure Jobs was quoted at some point shooting down the idea of an Apple phone, but it's nearly impossible to Google for that amid the Antennagate results.
I can't find any explicit denials by Apple, though. Digging through some 2005-2006 news archives, I find Apple denying some specific rumors, but neither confirming nor denying whether they would come out with a phone in general.