I really hope that the decision hasn't been made behind closed doors to surrender the premium market to Apple.
I doubt that, as the same-price-as-iPhone N97 is apparently having a lot of resources put behind it by Nokia for its launch in June.
For example the N97 will feature the world premiere of the Ovi Store dedicated application, which is obviously meant to counter the iPhone Store.
The 5800 was Nokia going for the market that Apple has totally missed: people who want a touchscreen smartphone but don't want to pay through the nose for it or sign up to any expensive contracts. It was also a low-risk way of testing the S60 5th Edition platform before it made its outing on more expensive devices.
Knowledgeable users (the kind Nokia SHOULD be listening to, not some ignorant street market research) are crying out for these features to be put back
I think you're overestimating how many smartphone users actually care about hardware specs.
The 5800 is probably Nokia's best-selling smartphone model right now, with sales comparable to the iPhone, yet it also has fairly middle-of-the-road specs (only 3.2 megapixel camera, 369mhz processor, no graphics hardware etc). What probably matters more to people is whether the hardware is "good enough" for popular functions, and whether the price offers value for money.
Let's face it, the iPhone's specs have never been that great either: it launched without 3G, without applications, without GPS, it STILL doesn't have a decent camera, there's no video recording, the GPS (when it came) lacked turn-by-turn, there's still no Flash support in the browser, there's still no multimedia message support, there's a limit on how many apps you can install... the iPhone is packed with very serious hardware spec problems if you look for them, but they're clearly not deal-breaking problems for those who have bought it.
It's not about raw specs, it's about the particular package of hardware and software that a manufacturer offers. What people want is a phone that does stuff they want, does it well enough to a particular standard (not according to specs but according to what they see on the screen), and is available for a price they're willing to pay.
The low price tag of the 5800 more than anything else showed what Nokia is best at, getting a lot of functionality into a solid mass market product at a very reasonable price. There's no shame in that, it's like Ford's Model T, it changes what people expect to pay for a particular class of product and so changes the market itself.
Whether Apple can match Nokia in price cutting is very unclear, because Apple have built the iPhone's interface and features around very expensive hardware. It will be a challenge for them to find a way to scale that down if they plan to sell cheaper models, as (for example) capacitive screens cost much more to manufacture than resistive screens. The iPhone interface also assumes unlimited internet access at no extra cost, but that wouldn't be the case if someone buys an iPhone on pay-as-you-go or SIM-free, or if they buy it on a cheaper contract than Apple demands. To some extent the iPhone has painted itself into a premium corner without an obvious way to move further down the price scale if required.
