Of course nobody expects that the existing phones will magically grow new hardware :-) But there are plenty of software-only features like native code applications, better multitasking, sensible VoIP support, or a more modern browser. Some of these are filling in really major gaps.

Also if the current phones can't be upgraded, it seems virtually guaranteed that Nokia will continue to release new low end devices running WP7 for a long time. This means that those phones couldn't e.g. support NFC, and would be rather unappealing devices if NFC finally takes off.