Just watching the stream, and at around 24 minutes in Steve actually says that they'll do 3G in the future.

"...plan to make 3g phones and all sorts of amazing things in the future"

I've read a few comments saying part of the reason they didn't go with 3G might be battery life. I'd guess it's partially that, lack of Cingular 3G coverage, and possibly the potential city wide wifi networks. Here in SF soon enough, you won't need the EDGE or 3G... we'll have Google/Earthlink city wide wifi.