My candy bar phone back then played MP3s just fine. I do not see what's the big deal with vendor-locked iTunes.
Where did these mp3s you played on your candy bar phone come from and what steps did you have to go through to get them on the phone itself? Could you browse through a library of millions of songs (on the phone) and download them individually or by album? Could you do it legally? What about your non-techie friends and relatives? Even if their phones could play mp3s, did they have any clue as to how to do it?
To be completely accurate, the ability to download songs from the iTunes store straight to the iPhone itself wasn't there at launch. It took a few months but that does point out another advantage of the iPhone over what was available at the time, - frequent software upgrades.
More and more it's becoming apparent to me that many of us in the tech industry have a huge blind spot. We want faster GPUs and processors. We want more storage capacity, more bandwidth, and more pixels, but we really only care about ease of use to a point. We like gadgets and playing with software so if getting some music on our phone takes some fiddling with software and hardware, it's just part of the fun. On the other hand, if everyone can do it, it takes away from our techie mystique. ;-)
Yes, iTunes was vendor locked but it was apparent well before 2007 that vast majority of the public didn't care.