Actually, listening to this conversation it's completely clear that he'd been imagining a device like the iPhone even then. It clearly solves a problem he has. Remember when he introduced the iPhone as "three revolutionary new products"? There were two that people really wanted: A touch screen iPod. A phone. And one that got lukewarm reception because people didn't know what to make of it: An breakthrough internet communicator. The iPhone was always about the third part for Steve, but you need the other two to sell it to the public.

As for your glib comment about a keyboard, I find the iPhone keyboard is wonderful for typing on. Yes, it's software, but it is a keyboard.