Having used a variety of pre-iPhone WinCE, Palm, Psion, etc PDAs, going purely by bullet points specs, the best WinMo devices launched in 2007 were capable and even feature-rich, but I agree the overall user experience was hobbled. Large touch-screen devices integrating phone, data and media needed a different UX and OS. MSFT's business was too platform-centric to take the strategic risk and their mindset was too incremental to make the conceptual leap.
I was at the 2007 iPhone announcement, got hands-on a prototype in the booth and had a dev unit pre-ship. As a technology strategist for a F500 ISV, my job was to assess the changing mobile device landscape. With the iPhone I think Apple deserves significant credit for two big things: the conceptual leap to a new UX/OS and going all-in on the large touch screen. Completely sacrificing both a physical keyboard or pen was bold and controversial.
While it was the right long-term vision, the reality which often gets glossed over, is the iPhone 1 didn't deliver on the vision and early adopters struggled. It wasn't until the iPhone 3G shipped 18 months later and the app store was released that the iPhone first began to slowly fulfill it's promise. I didn't daily drive an iPhone until the 3G. In recent years, I think many look back with rose-colored glasses at the iPhone launch and give Apple even more expansive credit for the "iPhone breakthrough" than the legitimate credit they justly deserve. Of the major players at the time, Apple was the only one who could make those bold choices because they didn't have existing phone products or platform agendas to preserve.
Apple understood software/hardware and how to marry the two together (in a way that the general public wanted to use) if it was easy, Microsoft or someone in the Linux world with hardware would be further long but they’re not.
Combining hardware and software the OS was done by many companies in the 1980s because if you wanted to sell something you had to do both and it’s been well over 36 years no one has really stepped up.