I seriously doubt that will happen. People have stopped buying $30 software for their computer, why would they buy it for their phone?Do you have statistics on that? My wife just bought Balsamiq for her computer without blinking, and that was $79.
Anecdotally, I know quite a few indie and larger commercial developers paying their salary and more on $30+ desktop software. I know that Balsamiq sure isn't hurting.
It's primarily the webset that can afford to subsidize free product on the back of VC.
The iPhone is a platform for cheap apps, mostly entertainment related and games.
Games (even small ones) take a surprising amount of resources to create, from art assets to developer time. Unless your game is a lucky iPhone hit, you just can't cover development costs.
If you want to make a go at an iPhone business, you optimize around that fact. You don't try to drag your existing business model to the iPhone and hope that the market drastically changes.
If your existing business model is "pay the rent", much less "cover payroll", then yes, you're quite right -- you can't drag your existing business model to the iPhone.
We do bespoke development for iPhone customers. They lose money, we make payroll, and we wait for the market to mature. Until it does, the iPhone is a total wash, and don't be surprised when the smaller shops that can't eat the loss start dropping out. It's a gold rush.
$1.99 is less than the cost of a movie rental, but movies have massive leverage across an incredibly large market. This idea that software should only cost $1.99 is remarkably poisonous, but fortunately, the market will correct that.