Steve Jobs famously launched the smartphone industry as "We are launching three things: an iPod, a phone, and an internet communicator. These are not three separate devices. It is one device, and we are calling it iPhone." Not having to carry a whole bunch of separate devices on a day-to-day basis was groundbreaking, and it was immediately clear that the synergy between the until-now separate features would open up a lot of new possibilities.
But since then the smartphone has mutated from a device of convenience into a grotesque attention-stealing privacy-invading Everything Device, which is used primarily as a proxy through which companies are doing massive harm to our society. For many people smartphones have become a necessary evil, and an increasingly-large group (many of whom Gen Z or Gen Alpha!) is deliberately refusing them out of self-preservation.
Sure, the market for a modern iPod refresh might not be gigantic, but I reckon it is definitely larger than the market for Apple Vision, or Meta's pervert glasses. The demand exists, the question is just whether it is large enough for Apple to care - especially when it means undermining their own golden goose app ecosystem.