It could record 720p HD video and allow that to be played back to a HDTV. they could make the Apple logo into an LED flash and have a better resolution camera. Some phones ship with 12MPixel cameras.
I know that phones don't need great cameras but if the tech is there, it saves having to own another camera.
The display tech could be updated to IPS or similar for better viewing angles and colors.
Add more RAM so that multi-tasking is easier.
After that, I can't really think of anything left to be done. Just keep incrementally increasing storage and drop the price.
The odd thing that some hardware dissecters have noticed is that the iPhone 3Gs IS capable of shooting 720p video - but for some reason its restricted to VGA by software.
Comments
I know that phones don't need great cameras but if the tech is there, it saves having to own another camera.
The display tech could be updated to IPS or similar for better viewing angles and colors.
Add more RAM so that multi-tasking is easier.
After that, I can't really think of anything left to be done. Just keep incrementally increasing storage and drop the price.