In 2007, the proper web involved tons of Flash. Flash video players, Flash games, Flash-based interactive websites. None of those worked on the iPhone.
Its web browsing ability wasn't much better than what you could already get on keyboard-based phones like Nokia, Blackberry and Samsung. On the iPhone you did pinch to zoom, and on the other smartphones, you were served the WAP version of the page, or you could browse the full page with the scrollwheel.
That's a very revisionist version of events. Much of the initial disillusionment around the web on featurephones came from WAP being (mis)sold as the Internet on a phone.
If you go back and watch the original iPhone demo you can see that people were genuinely wowed by being able to browse the Internet ('the real internet') on a mobile.
In fact, 'it's not a watered down version of the internet' was one of the tag lines of one of the first iPhone commercials
Also worth noting that flagship phones have only gotten more expensive since the first iPhone. Remember when we all thought the first iPhone was too expensive?
This is 2k for what is essentially a prototype.