Eh...most of Nokia's "smart phones" weren't. Which is why they started losing the high end. With Android pushing smartphone prices down to fancy feature phone prices then Nokia started losing the middle and low end as well.
This is why Android can gain massive share with iOS still growing it's own share. Android isn't competing with Apple so much as beating the crap out of Nokia and RIM.
A nano based iPhone is probably the only reasonable addition to the line up to capture numerical share. A higher end iPhone probably wouldn't help as much in that arena.
I don't think a nano-based iPhone will actually do that much for the profit share and would have to run it's own version of more limited apps.
Apple started with very small share and huge profits so I don't accept that loss of market share eventually loses profit. Releasing crappy products will cost you both.