I was a big iPhone hater at the time. Still kind of am.
1. It was really, really expensive when it first came out - there was a several hundred dollar price drop before it really took off, IIRC.
2. I had a windows mobile (HTC TyTN II) which was actually sweet.
2a. The slideout keyboard was way more accurate than the software keyboard on the iPhone, and Apple hadn't entirely figured out autocomplete (I think their keyboard is still poor compared to swipe etc, tbh).
2b. It was durable - it never died after being thrown off stairs, slammed on the ground, crushed in backpacks, stepped on, getting dropped in a river, etc etc. Towards the end of its lifepan, when I wanted to get an Android phone, I found that I couldn't easily kill it even if I tried. On the other hand, my friend shattered their iPhone by bumping their pocket into the corner of a table.
2c. 3g, and ATT only. 2g is basically unusable for browsing the desktop web, and ATT sucks.
2d. Anybody could, and many people did, publish whatever apps you wanted. I was able to download a full offline database of German public transit schedules and navigate flawlessly in cities I had never been to (which was a big deal), SSH into servers in emergencies (using the aforementioned full-size keyboard), full offline GPS of the continental US (something that's difficult to come by even today!) and so on and so on. The iPhone on launch was basically an expensive consumer toy, had no allowances for third-party developers, and Steve was telling everyone that they were better off without them.
In an expansion of my last point, myself (and a lot of other people) didn't so much think that the iPhone was going to fail as dread its success. The iPhone, and really Apple, represent and drive the trend of consumerization and broader locking down of computing.
And I think that we were right to do so - the broader population largely thinks of their handheld general-purpose computers as texting and passive content consumption devices, because that's all they're allowed to be. And that's sad.