Saying that the iPhone is not leaps and bounds better than anything else in the market at the time is disingenuous - if you used both the N95's browser (with the crummy joystick-controlled mouse) and the iPhone's multitouch browser, you'd know there is no comparison.
I'll go further and say the Nokia phones at the time were much more marketing-driven. They had huge checklists of features _so that marketing could say they have "more features"_ (e.g. irDA), but the core experience was poor (unresponsive and confusing UI, bad input methods) it didn't matter.
Did Nokia make better phones? In one sense, yes - they had longer battery lives, better cameras, they worked much better as phones, for chrissake. But, in the most important way, the iPhone blew everything out of the water - which phone people would prefer to use. I preferred a usable browsing and mapping experience to the jack-of-all-trades and master of none approach of Nokia phones, and apparently, so did the market.