So the past two clients I\'ve been at, all the talk has been about creating an iPhone app, and I won\'t lie, I want to make one. Or at least learn how to make them.
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The short answer is yes, a Mac Mini is an adequate iPhone development machine.
However, considering the hardware specs and inability to upgrade, the Mac Mini is an awfully bad deal. It sounds like you have a good amount of system building experience, so why not build a hackintosh? You can get performance rivaling a Mac Pro for not much more than the cost of a Mac Mini. Plus it can double as a Windows machine, since that sounds like your primary OS.
You should also consider the fact that you'll need to learn Objective-C and Apple's APIs before you'll be able to make anything useful. That's a discussion for another day though...