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so....i'll toss in my 2 cents...as applies to all cell phones equipped with gps.
my opinion is yes, it will kill off the dedicated gps-hardware market. eventually. but its going to take more accurate gps chips in cell phone and far more than a guy in his basement to do it. to date, gps companies that allow users to map and share have done this more for the purpose of making sure they have complete course coverage. in a perfect world you would never have users mapping and sharing, but professionals doing the work. now this could be either pros on the ground (ala skycaddie, mapping to within 1m of accuracy, though the gps devices in my opinion arent there yet...someday soon they should catch up however), or else companies in office building with detailed maps. if you think you can do this all using google earth, think again. companies like upro will more than likely want to get maps from multiple sources, probably pay for all of them, to get the most accurate maps possible. that will give you the accuracy you need. you might get "close" with google earth, but i dont think the accuracy of a guy mapping using GE will be able to stand up to the likes of the upro mapping, just my opinion though.
my guess is that the upros of the world (and upcoming devices that use actual images) start as hardware + software, then eventually move to a software solution only. it will take a while, but i think it will happen. and yes, if you have the $ right now, you could probably buy some maps, hire some programmers, and get some data entry folks and come up with a good solution for the iphone. price it right, and i might just purchase it too :D