I'm not really surprised it's slow takeup.
Not everyone likes O2. There are horror stories (I had one, some years ago, but have got over it).
The iPhone looks nice, but it won't do one of the most important things I need of a PDA - it won't allow me to edit or update Word and Excel documents.
I just bought an XDA Orbit, 8 months old, for £150. That WILL do Excel, Word, etc. It also includes a reasonable GPS with "walking" and "driving" functions. At the moment, I'm paying £15 a month for 200 minutes, 400 texts, and unlimited calls to other O2 mobiles. Almost all my family is on O2, so that's nice.
If I decide I want to use it much for browsing, another £7.50 gets me 200MB a month.
So for £150 plus £22.50 a month, I'd have significantly more functionality than the iPhone (but not the very clever operating system, which I do find impressive). When they bring out the iPhone 2, with Excel and Word (and maybe Satnav) and get the tariffs right, I'll buy one.