Here is my iPhone wishlist of things that could actually be implemented in software.

1. Handwriting recognition - like Symbian UIQ phones.
2. Full Bluetooth support.
3. Picture messaging.
4. SMS Delivery reports support
5. Ability to save SMS drafts and templates
6. Video recorder
7. Backlight-off screen savers (i.e. displaying the time in white with the backlight off, like Nokia N70/1)
8. More control over power saving, (i.e. backlight dim after 1 min, backlight off after 2 mins, lock after 3 mins)
9. Fully skinnable interface (all applications)
10. Contact groups with different ringtones etc.

Anyone got any other realistic wishes? I mean ones that wouldn't involve changing the hardware (like adding 3G support).

Agree,

and why must everything be so damn hard to do on the iPhone?! Why can't one just drag and drop images into the iphone...? Feels like a BB phone

Amen!!

Flash support for SAFARI!
hey, maybe even Firefox

copy & paste
full search in contacts

Mobile Office

ability to read the garbled letters when sent from web sms

For me the main lacking software in the iphone is a search tool, which should search on calendar and notes and the copy & paste capacity.
Also the synch feature should be extended to notes.