I agree, it's technically an "iPod", its main purpose is supposed to be playing music..but the touch added all this other functionality. it wasn't originally meant to be a gaming device Did the app store become a bigger success than Apple had anticipated?
It depends on the gamer. If you had played PSP, NDS, PS2/3 and you like physical control, you will find RPG games on iPhone doesn't really seems to appeal much as you can't really FEEL that you're actually playing it, at least for me. However, if you're fascinated with the accelerometer and tilt function of iPhone/iPod Touch, then you won't be dissapointed as they are several games that ultilize such features greatly, which is uncomparable with any other existing portable gaming devices. E.g: DoodleJump, SkyBound, Labyrinth, Up There! and many more!
The big issue is of course battary life as is already mentioned a couple of times. In terms of games, I thing that the platform is really maturing and there is a lot of really good games out there. Especially if you make a value for money consideration into account. The amout of gameplay hours you can get for let's say $50 is enourmous vs. a couple of games on PSP, DS.