The current connector might have an usual form factor device-side but the other end of the cable can plug into and work with 95% of computers. Making it a Thunderbolt-only connection would be a huge departure from "it just works."

At the time, the USB 2.0 spec had just been finished (and not yet been ratified) -- it was even more futuristic than Thunderbolt is today. It was still a year and a half before any Mac had built-in USB 2.0, and no other computers could handle it, either: neither Windows XP nor Linux 2.4.19 had been released yet. Not that it would have done any good, because you needed iTunes 2.0 (a Mac-only app) to make any use of the first-gen iPod.

I wouldn't say they "gave up" on Firewire. I'd say they used the only feasible mechanism they had available, until something better came along, and requirements changed.

With recent iPhones, you don't need to ever plug it into a computer, so there's no real departure from "it just works". Wifi ("n") is almost as fast as USB2, and syncing can seem even faster if you do it asynchronously (no cable required). Their answer to "can I plug the iPhone into my computer?" may well be "you don't need to -- and it just finished syncing while you were asking".