A 2nd gen iPhone... I'll offer my uneducated guess.
The iPhone represents many things:
- connection to the phone system
- collaboration with an outside company, namely AT&T
- business risk
- technological risk
- consumer smart phone
I could continue, but those are some of the top points. Fan frenzy notwithstanding, Apple needs to sell lots of iPhones for the product line to succeed. This isn't just an iPod or some next gen Mac. It's a phone that's more a generalized computer. A big blunder with the iPhone could quickly be its end.
So far the iPhone has done nothing particularly untoward. Yeah, people carp about the slow EDGE network and a few missing features. Overall the launch has been a success.
I'd guess the first thing we'll see are general updates to the iPhone s/w (via iTunes). They need to prove that the update process works and does nothing to harm the phone network. This would imply that there will be little tolerance for s/w bugs, at least at first.
Next - hopefully - we'll see a new icon or two for new functions. It's a computer! They can add features via s/w (updates via iTunes) and maintain the same platform. Eventually we could see lists of functions not unlike the "More" selection in the iPod section of the iPhone. In other words, we could have more functions available to us than we have screen space for their icons. Pick and choose what fits for you and keep the others in the background!
Maybe a 2nd gen device isn't that far away. Still, I'd consider a July '08 release to be ambitious and a July '09 release to be very conservative. Even then I'd guess it would be more a 1.5 gen type device at first, characterized by expanded memory and enhancements for things that don't otherwise work as well as they might.
Just my thoughts.