2. The 5 megapixel camera on an iPhone 4 is pretty amazing. I wouldn't call it a waste of resources.
3. Displacing MF from high-end camera manufacturers requires tiny pixels. You can shoot pictures for e.g. magazines on a $2,000 D600 today, but in 2003 you would have needed at least $4,000 MF camera plus a $10,000+ scanner. Yes, this is just a niche of the photography market, but it's an important, high-profile niche.
In my mind, the quality-conscious consumers were taken by digital at 6 MP, and the studios were taken by digital at 24 MP. There are a few morons around with more money than smarts who will buy crappy cameras because the numbers on the box are higher, but it's clear to me that they're not driving the market right now.