Original iPod was $399 iirc and yes was Mac only. I'm sure that Apple could come up with a lower cost alternative to the iPhone, the iPhone nano or something along those lines, but the question comes down to if it would be worth it to them to do so.
The smaller iPods are filling a need in the market, not really just a lower cost alternative, but a smaller alternative for those on the go, working out, etc. The nano and shuffle fill that need.
It's been suggested that the iPhone 4 costs approximately $190 in parts alone. That's not counting assembly, shipping and recuperation of r&d costs (which for any hardware and software vendor is significant ).
If Apple were to release a less expensive device, the major cost cutting parts are the screen, the flash memory, ram and processor. To deliver a less powerful device that would run slower and possibly have a difficult time multi-tasking with iOS 4.0+ would be egg on their face. Apple gets the carriers to subsidize th cost of the phone. Apple gets paid more than the $199 or $299 that is paid to ATT or verizon. With subsidized phones out there AND the fact some people go out of their way to pay the unsubsidized price, I dont see what apple would gain by making a smaller phone.