I'm in the UK too. I'm aware of 3G vs EDGE so my reasons for holding off getting an iPhone is simply no 3G. As far as I can see Apple have produced the best mobile internet device by a mile and equipped it with the equivalent of a 56K modem compared to even the crappiest ADSL or cable. Not good enough, and Wifi where I live means jumping from free hotspot to free hotspot is not very likely. I doubt if we even get EDGE here now I think of it. When the 3G version comes out I'll get one, barring any spectacular Apple/o2 restrictions somehow placed on the device. As a user of Apple's computers, all I can say is that no 3G was a big let down, so hurry up and get the new model out.
For my friends they probably wouldn't care about all that. The issue is the £280 cost of the phone. I don't know anyone who would entertain the idea of paying that for a phone, regardless of features, specs or sex appeal. I'm not talking about people who couldn't afford the cost either. This for me is the number 1 reason for poor sales in the UK by a mile given the subsidised handset model of the UK mobile industry.
Next up, the contract. The initial o2 deals were laughable. Not even close to being competitive. I would hope they were just taking the piss out of early adopters but it looks like they've had to back down early (due to the poor sales). I think the new revised deals are OK, no worse than what I get off o2. Still, I do know a lot of people who'd find £35 a month too steep for mobile service.
Which leaves network lock in. I have to say I really don't care. I've used all the big networks except 3 and found them much the same. I doubt anyone I know would really care the iPhone was only on o2. If they wanted one, they'd sign up to o2. No big deal, maybe a little grumbling if they'd had to deal with o2 customer service in the past but not a deal breaker. I can't believe that if the iPhone was available on all UK networks, but still cost £280 plus £35 a month, Apple would have sold that many more of them. The only reason they might I can see is that exclusivity means switching from another network is a non-starter if you're a year into an 18-month deal.
I agree that if it was available totally unlocked, so even the pay as you go customers could use it, then they'd sell a load more, but I still think the price puts a ceiling on sales. Most people I know on PAYG want to keep mobile phone costs as low as possible or just don't use the phone that much so spending all that on an iPhone isn't going to happen. Nor is Apple pissing all over their 'exclusive' image by letting teenage chavs everywhere get the iPhone on PAYG or £15 a month cheapo contracts. Just as with Macs, Apple don't do, and never have done, 'low-end'. It's just not their target market, for better or worse, and I'm sure they've evaluated the impact of units sold vs. brand image or whatever.
Looking forward to the 3G iPhone but not holding my breath for an unlocked version anytime soon.