That was my first instinct as well. But ..... much as I love Apple tech, my iPhone, at least, is a pretty poor phone. It freezes during calls, frequently only rings once if at all so I miss a lot of calls.
So I figured that if I could use it as a Touch I'd actually still be getting what I enjoy out of it, if that makes sense.
It's all as updated as I can get without upgrading to Snow Leopard on my MacBook. I'm reluctant to shell out on the upgrade at the moment, particularly as I think it might mess with some work software I need. A shiny new laptop is on my wish list!