From Sonny Dickson:
Instead of the modern touch-driven interface we now call iOS, it featured an operating system dubbed "Acorn OS" (this was an internal code name, and it unclear if it would have kept that name if it had been released), which is derived from the acorn shown on boot. It presents an on-screen click wheel, which took up the bottom portion of the screen, and on the other half of the screen, a UI identical to the one found on the beloved iPod, with options such as "Dial", "SMS", "Music", "Contacts" and "Recents", however lacking a browser option. The interface is interacted with in the same way an iPod would be operated.
Back when Apple decided to begin Project Purple and make a phone there were two major tracks that they explored. P1, headed by iPod-lead Tony Fadell, was more conservative and something the company felt they could ship first. P2, headed by Scott Forstall, was more audacious. It was the iPhone.
A funny thing happened though: The more audacious project hit major milestones like functioning SMS faster.
Eventually, everything lined up behind P2 and Steve Jobs made his historic announcement 10 year ago on the Macworld Expo stage. And P1 never saw the light of day.
Check out Sonny's post for more screenshots.
To hear the story of P1 vs. P2, and the Purple Experience Project that led to iPhone, check out Nitin Ganatra on the Debug podcast.