My wife wants one to replace her Palm Treo 650 smartphone, as well as her iPod. Makes sense to me; the iPhone doesn't cost anymore than those two devices put together did.
But about "slashing prices"....
Apple actually *has* cut prices on the iPods twice now. When they originally came out, the standard iPod cost $399 (which is what I paid). Then, about a year later, they dropped the price to $299. Eventually, about 4 years later when the Zune was announced, they dropped the price to $249. And of course, the features increased with every model release.
I would expect the iPhone to follow suit; Apple will (rightfully so, I might add) hit up all the "early adaptors" up for the most cash they possibly can, but will eventually cut a hundred bucks or so off them once the initial sales dies down, let's say in a year or so.
I'm not sure I'd call that "slashing prices", but I do think they will eventually lower the prices some.