I'm not so surprised, because if you followed the market at that time closely, the iPhone was much less of an obvious innovation than it is in retrospect.
For starters, we'd had PDAs with touch screens for years, and they were hot in the business market for a while, but remained a niche product. Even when they got built in phones.
We'd had tablets since at least '99 (I worked on the software for one in '99 and we were certainly not first), and they'd remained a niche - either underpowered or overpriced (the latter typically being pretty much laptops with a swivel display).
When we tried to build interest from partners in our tablet in '99, it quickly became clear the market was not at all ready. People didn't understand why they'd need or want a product like that. Ericssons "Screen Phone" suffered the same fate, and quietly disappeared. (Though both the tablet I worked on, and the Ericsson Screen Phone were limited severely by being tied to ISDN base stations rather than truly mobile).
And it stayed like that for several years.
If you'd played with that stuff, the iPhone looked like an evolutionary step of a niche product.
If you were intimately involved with these markets at the time, it'd be easy to assume that the tepid response was still going to be the case when the iPhone arrived, and that at least you'd have plenty of time to see how the market was maturing before needing to respond. Let someone else make the expensive market lessons for you.
It's one of those cases where being too close to the technology was a disadvantage for many, because it meant not so easily seeing that this was the evolutionary step that finally would tip things over into creating excitement amongst regular people.