The reason for the 2nd Gen iPhone to become successful could be due to the fact that they released it outside of the US as well. That, and 3G internet was, obviously, a good selling point.
In Japan, at full price, iPhone sales were just a blip for years. Then the iPhone got subsidized down to free or almost free, and adoption exploded.
Don't know about Japan, but any person stupid enough to buy a subsidized iPhone is just plain dumb: if you want to pay the lowest for your phone get it without a contract: it is almost always cheaper that way. But yes; you do, of course, need to pay upfront.
While searching for statistics in unsubsidized iPhones I came across this piece, which tells a story of "Why I won’t buy another subsidized Android phone (and why you shouldn’t, either)"