>> iPod was not well-received until the third generation (2003) when a few redesigns were made and iTunes took off.
Remember - this was ALSO around when they released iTunes for the PC. AND had the über-hip silhouettes dancing with white earbuds marketing campaign. We still see vestiges of this now. Marketing, marketing, marketing.
>> iPhone had (relatively) abysmal sales until the end of the second generation, after at least one OS upgrade....
Yes, and that's also about when the prices dropped on the iPhone as well. Remember, people desperately wanted the iPhone from day one, but didn't want to pay an unsubsidized (or minimally subsidized) price for the iPhone.
For what it's worth: I agree fixing products is important and will eventually impact consumer purchasing, but I think marketing and "Shiny" is far more important.