My theory is that Apple lost because Windows had more apps. While, I use Windows and Linux, Windows has more apps than Linux in the desktop environment.
When it came to supporting more hardware, making development easier, having better APIs/docs, being more open, supporting 3rd party devices, being more cost affective, having more choices and soon on is how Windows won the race to get the most applications. Which in turn is why it won the war for desktop market share.
But those are the very reasons that I am predicting that Android will dominate shortly in the PDA/mobile market. It supports more hardware, it makes development easier, it makes licensing easier, it supports more 3rd party devices, it is more cost effective, it offers more choices and so on. Apple is in the lead today, just like the Apple ][ was in the lead in the earlier 80s and lost so to will the iPhone. Sure it will be cool and trendy, but it will not be the market leader.
Just like their closed minded ways hurt them eventually in the desktop space, so will it hurt them in the mobile space. Now there are things they could start soon to fend off the threat, for instance they could invest time in allowing development from just Intel based Macs to various OSes, like Windows and Linux as well. They could try to expand to additional carriers when the AT&T exclusive offer period ends, they could open up and allow programs to run background services, widgets, run-time environments, emulators and whatnot. They could work to expand 3rd party device support, etc. But that is not who Apple is, they are little fascists who need to control everything, the benefit is that there is less to break or go wrong with products, but for me, I prefer freedom to safety any day, so cannot see the iPhone winning in the long run, but perhaps more people prefer to give up freedom these days for things to just work and I am completely wrong. Time will decide, not a /. flame war.