[Windows Phone 7 Q&A, Help & Troubleshooting] N8ter:
It depends on how you look at it. 3GS was pretty cutting edge, but halfway through its lifecycle other handsets eclipsed it. This happens with every phone. Nexus One? HD2? They were all cutting edge at some point in time. I don't know if the i4 can be referred to as cutting edge anymore. Even when it was released, it wasn't much better than other devices like the Galaxy S, Droid X, and a couple others. The only thing it has is the Retina Screen (but Samsung has sAMOLED, and IIRC a better GPU in the Galaxy S phones... so not the i4 wasn't as revolutionary as you're insinuating).

Apple achieves good performance through decent programming and standardized specs. The hardware isn't so OMGCRAZY. The designs are nice too, people like that in their "lifestyle" gadgets...

It's not good to base a platform off of "cutting edge" hardware unless you are the only one developing it. This works for Game Consoles and the iPhone. It does not work for Android and WP7 handsets. The business model is different. Making the minimum specs cutting edge discriminates against low cost assemblers (by making them incapable of competing with the likes of Samsung, Motorola, HTC in price, since you're making the OEMs spend ridiculous amounts just to build the phones) and locks you out of emerging markets (full of people who won't be able to afford the devices to begin with). It also makes it near impossible for most people to purchase the devices off contract, due to cost.

Not everyone wants to buy $600-700 phones.

The platform is new. You SHOULDN'T expect many to go above minimum standard. Although it is out of the realm of certainty, failure is still an option at this point.

Megapixels do improve picture quality

If you're video chatting with someone on a desktop via VGA webcam (or VGA FFC) and they go to full screen mode your picture will look terrible.

Using tech like Fring's DVQ you can adjust the quality of the stream based on available bandwidth/connection speed and current "4G" technologies (HSPA+, LTE, and WiMax) are more than capable of handling HD Video Conferencing.

I know, because my internet connection here is slower than T-Mobile's 3G and I conference from my "home work computer" all the time using a HD WebCam.

This information is patently false. What resolutions your video camera can record in is hardware. If it doesn't have a sensor capable of doing HD video, it won't do HD video.

The only way the carriers have anything to do with it, is if they ask the OEM to take out an HD FFC and replace it with VGA (which most will naturally do - NOW - because the demand for FFC is low and most people simply won't care).

But VGA quality streaming is terrible. I rather have a LED indicator at this point in time than a VGA front cam.

Current "4G" is not charged an arm and a leg for, and people here aren't forced to go with expensive carriers (AT&T and Verizon) unless they live in areas where the smaller networks cannot get them decent coverage, they want a phone exclusive to the carrier, or they can afford it and simply don't care about the price.

The reason Video Chatting didn't take off is because phones are already expensive enough. Putting a FFC in a phone usually means losing something else that has value ALL the time in ALL situations. Also, most phones do NOT have front facing cams on them, so there isn't much reason to want one right now. It's like getting a Blackberry for BBM, when you have no one to BBM... Why bother?

By the time FFCs become an "expected" feature, most people who brought a phone in 2010 will be getting ready to upgrade, and can simply get a phone with a FFC on it...

On top of that, most smartphone OSes don't have the capabilities in-built into the OS. Trying to video chat when you have people using 10 different video chat apps is ridiculously hard. You can't just download one client to access them all like you do for IM services. It's too much of a hassle right now. That's why BBM keeps people on Blackberries, but no one has heard of WhatsApp and half of the people you know on non-Android phones can't be bothered to download and use Google Talk.

The demand simply isn't that high, and people who need it for business reasons, etc. simply get a phone with that capability - irregardless of what OS it runs. Getting stuff done > preference.

Also, there are very, very few things that will kill your battery faster than video chatting.

A phone that turns off halfway during the day isn't fun to use - FFC or not.