When I was a kid shopping with my parents, they always said "Look with your eyes, not your hands."
Part of the beauty of the iPhone and iPod Touch interface is that you can look with your hands. Seriously, the appeal of this interface lies not in either the 3.5" screen or the Multi-Touch interface. It's both!
The screen is larger than most PDA and cell phone screens, but it's still small compared with how most of us are used to browsing the Web and reading email. But the fact that it's so easy to scroll around with the flick of a finger means that your data can be displayed in big, clear graphics, even if it doesn't all fit on the screen.
Maybe I'm slow, but it just dawned on me today that the "Day" view in the calendar only shows a small portion of the day, but it's very readable. Because I can scroll up and down so easily, it doesn't bother me that the view is limited. It's even easier then scrolling on a desktop machine.
So the direct manipulation via Multi-Touch is an attractive feature itself, but it also enables greater magnification of displayed information. That combination is especially appealing.