The carrier deal was also a surprise to them, but if you believe this anonymous former RIM engineer they also didn't think it was possible to do what the iPhone did and still have acceptable battery life:

"RIM was even in denial the day after the iPhone was announced with all hands meets claiming all manner of weird things about iPhone: it couldn't do what they were demonstrating without an insanely power hungry processor, it must have terrible battery life, etc. Imagine their surprise when they disassembled an iPhone for the first time and found that the phone was battery with a tiny logic board strapped to it. It was ridiculous, it was brilliant."

https://news.ycombinator.com/item?id=2044389