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I've seen articles that diss the whole idea that camera phones will replace dedicated cameras. While I don't think that will ever completely happen, much like television never replaced radio or mobile phones haven't replaced landlines, I do believe they will eventually become dominant for one simple reason: it's the camera you'll have most and, in some cases, it's already good enough.
My wife has a Nikon D50. It takes fantastic pictures. It's not something that gets used day-to-day because it's a big camera. It's impractical to bring it on your daily travels unless you know you're going to use it.
Certainly there are smaller cameras you can slip into your pocket, but let's face it: how many people outside of us geeks like the idea of carrying around more than one electronic gadget in your pocket or purse?
Mobile phones are the one thing that people tend to carry--if they have them. They are usually compact and fit into a pocket or purse very easily. It's almost always within earshot, making it easy to get to. If it can take decent pictures, it's easy to use, and easy to share, will consumers use it? You bet!
If you have a Nokia N95 in one of it's many variations, you already know what it means to have a great, easy-to-use camera on your mobile phone that can share photos with your friends in near real-time, available data connection permitting. Heck, there's services out there that let you stream video in real-time from your device!
I know that my colleagues at Nokia are working on improving the cameras that go into not only flagship devices like the N95, but all of the camera-equipped phones Nokia will sell in the future. That means the camera you have--your mobile phone--will be that much better. It may never be as a good as a standalone camera in some respects, but it will be in the most important respect: it's with you.