There’s a theory favored by savvy Apple watchers that the first generation iPhone — greeted with such hoopla last year — was not actually the real thing.

That iPhone – the one that hundreds of thousands of Americans queued up to buy for up to $599 apiece, the one that Time magazine named the Invention of the Year, the one that six million people purchased before Apple finally stopped making them in May – was just a trial balloon floated by Steve Jobs to test the airwaves.

According to this theory, the real iPhone – the one aimed at the broadest possible market here and abroad — would start at $199, the magic price point at which consumer electronics devices seem to take off and become mass market phenomena. It would have built-in GPS location tracking, “push” e-mail, and wireless syncing with corporate enterprise networks. Most important, it would run hundreds of third-party applications available through an online App Store and operate over so-called third generation (3G) cellular networks that are two to five times faster than the one used by that first, prototype iPhone.

If this theory is true, then the real iPhone era begins on Friday, July 11, at 8:00 a.m.

That’s when the iPhone 3G goes on sale at Apple (AAPL) and AT&T (T) outlets in the United States and at the stores of Apple’s cellular partners in some 20 other countries around the world. (Strictly speaking, the era begins early Thursday, when the device goes on sale at 12:01 a.m. New Zealand time. Given how the Earth turns, that corresponds to 8:00 a.m. July 10 at Apple’s New York City flagship store and 5:01 a.m. at its Cupertino headquarters.)

Some things about the new iPhone haven’t changed. Physically, it’s almost identical to the first. Same touch screen, same dimensions — except for the back, which is slightly bulgier and made of black plastic instead of metal.

Conceptually, it’s still one device that combines three of today’s most popular technologies — cellular communications, portable digital music and wireless access to e-mail and the World Wide Web.

And the fundamental breakthrough is the same: unlike most devices that combine several functions and do none of them well, the iPhone puts together three must-have functions and does at least two of them better than they have ever been done before.

Early reviews suggest that the one thing the first iPhone was not particularly good at — telephony — is much improved in the second version, thanks to a redesigned audio system and, perhaps, improvements in AT&T’s network.

There’s still no physical keyboard, so devotees of RIM’s (RIMM) BlackBerry who were turned off by the lack of tactile feedback when dialing or texting on the first iPhone are not likely to be turned on by the second. The battery is still not user-replaceable, a shortcoming that may be even more important this time given the power demands of operating at 3G speeds. (One early reviewer who was getting nine hours of Internet use on the first iPhone clocked less than six hours on the second. See here.)

The built-in camera is the same under-2 megapixel device that can’t do video. There’s still no way to cut and paste text. And you are still married to AT&T’s cellular network for the life of a two-year contract, at least in the United States. In fact, the bonds of that matrimony may be even stronger this time around, given the way AT&T has set up the in-store activation procedure, and will cost U.S. customers at least $10 a month more.

There are many small improvements. You can search address books, delete e-mails en masse, set parental controls and save e-mailed photos. (These improvements will also be available to owners of the original iPhone as part of a free software upgrade.)

Investors will note that Apple has made major changes in its business model. Rather than testing the waters with a handful of exclusive contracts — first with AT&T, then with O2 (TEF) in England, T-Mobile (DT) in Germany and Orange (FTE) in France — Apple has gone global this time, with deals in six of the seven continents and more than 70 countries. To do this, however, it has had to largely abandon the arrangement — unique among cell phone manufacturers — by which carriers sold the iPhone for full price and kicked back a share of their monthly revenue to Apple, which was accounted for in monthly increments over the life of a cell phone contract (usually 24 months).

Steve Jobs was able to dictate these terms — quite advantageous to Apple — because the carriers recognized that being first to sell the iPhone would win them thousands of new customers. In most of the new markets Apple is entering this year, it is acting more like a conventional cellphone manufacturer, taking its (sizeable) profits upfront and letting the carriers subsidize the device with voice and data plans as costly as local market conditions will allow. (See Canada’s Rogers Communications (RCI), here for example, to see what kinds of problems this can lead to.) The price of the iPhone itself also varies widely, from as much as $888 for pre-paid phones in Italy to $75 in Mexico and free with certain data plans in the U.K.

Except for those costs, none of this affects the experience of the users.

For them, what will really distinguish this iPhone from the one that preceded it — and from every other smartphone out there — is the flood of software expected to be unleashed when the App Store opens on Friday. Apple has already demonstrated more than a dozen third-party programs for the iPhone, and over the next few months you can expect to hear about hundreds more: business apps that take advantage of the iPhones ability to “push” data down the network when it’s available (rather than when it’s requested); games that use the device’s accelerometer to navigate virtual space; shopping and social networking programs that use satellite tracking to tell you what shops or restaurants and which of your friends (or enemies) are near the spot where you are, right now.

In the end, every successful computing device is ultimately a software “platform,” a vehicle for the programs that give it its true value. This is where the real iPhone will stand out, and judging from the interest among the 4,000 third-party developers who have already signed up to write for it, it’s got a good headstart.

Are Apple’s lawyers getting ready to go on vacation? For the second time in as many days, the company has agreed to settle a lingering class action suit.

On Thursday, it was a pair of complaints out of Canada that 1st, 2nd and 3rd generation iPods were delivering something like three hours of music, not eight hours as advertised. Although one case was granted class action status and the other wasn’t, Apple (AAPL) agreed to settle both, according to the Montreal Gazette, offering $44 store credit to any Canadian who purchased one of the affected iPods before June 24, 2004. As many as 80,000 could be eligible. Hearings are set for May 26 in Montreal and June 20 in Toronto.

Then on Friday, according to the LA Times, Apple agreed to pay some 2.3 million Mac owners refunds of $25 to $79 to resolve claims that some of its power supplies were prone to fray and spark and self-destruct. Customers who bought replacement adaptors for PowerBooks and iBooks could be eligible for the refunds, according to documents filed in federal court in San Jose. A final court hearing is scheduled for Sept. 8.

Still pending, notes the Gazette, is the case filed against Apple Canada last fall by law student David Bitton who was surprised to discover that his 8GB iPod Nano held only 7.45GB. According to his lawyer, Bitton is asking for the full $220 purchase price, but will settle for 7.5%, plus court costs.

Japan has ordered an investigation of the first generation iPod nano for possible defects after one started emitting sparks while being charged. According to wire service reports, the problem surfaced in January in Kanagawa Prefecture southwest of Tokyo, and Apple (AAPL) reported it to the government in March.

An official at Japan’s ministry of trade and economy said a defect is suspected in the lithium-ion battery in the iPod Nano, model number MA099J/A, according to the AP.

Battery fires are rare in iPods, but not unheard of. A search of Apple’s discussion boards turned up a similar report filed on Feb. 20, 2008 by a user named Phil under the heading “My iPOD nano Exploded” (link). It reads in full:

Is there something wrong with the battery they put on the first gen ipod nano. mine just got blown to pieces. I was just charging it on my Laptop then it suddenly sparks and it caught fire. even the clicking wheel got melted. and the back of the ipod split open.

am i the first to experience this flaw! im so disappointed with that.

What should i do?
if you wanna see the pic go to - http://www.flickr.com/photos/23960698@N02/

The photographs show a badly charred black iPod nano, model No. A1137.

Lithium ion batteries have caught fire in Apple notebook computers, as well as laptops made by Sony (SNE), Dell (DELL), Lenovo and other manufacturers.

In the iPod line, only the nano seems to be having similar problems. In October an Atlanta airport worker claimed his iPod “nana” caught fire in his pocket, although TV reports of “chest-high flames” don’t seem credible. (link) Last April, an Australian reported in an Engadget forum that his nano exploded with a force that sent it flying to the floor, where it sparked and smoked until he unplugged it. (link)

There are no reports of other iPod models catching fire in Apple’s discussion boards.

Apple introduced the first generation iPod nano in Sept. 2005 and sold its first million in 17 days. It was discontinued in Sept. 2006.

It’s not clear why the problems are surfacing now, or why Apple waited nearly two months to report the Japanese incident to the government, as required by law. Japan’s ministry of trade and economy has “strongly warned” Apple and instructed it to investigate the cause.