At the time you basically had two choices for touchscreens: resistive or capacitive. Resistive was "obviously" the way to go because it was far more accurate. Choosing capacitive was inspired -- when used with stubby fingers the accuracy problem was moot, and it allowed multi-touch.
Just before the iPhone came out I was fairly confident I knew what the future was. It was now possible to create a phone with the horsepower to run a real web browsers. 800x600 pixel screens were available which would display normal web pages nicely, and a resistive touch screen with a stylus would make them useful.
Then the iPhone came out. 320x480 screen meant normal web pages wouldn't display properly, inaccurate touchscreen meant tap targets needed to be increased massively. Why would anybody buy an iPhone which didn't allow you to install apps, and the web was unusable because it required rewriting every page since existing pages were unusable. Instead you could buy a phone which allowed you to install apps and which allowed you to usably access the web. Obviously the iPhone would be a failure. :)