Yes, maybe it'd function OK with 40% of screen used, but at least for me there are still issues:

1) I already find reading text easier in portrait mode while I find viewing a video easier in landscape mode. Even with higher resolution I still find the resolution of 800x288 too wide in proportion; albeit less of a nuisance than on iPhone. (Where IMO either the keyboard is usable but the view of rest is not good enough or your view is good but the keyboard is not good enough.)

2) I don't like different size of windows (content) all the time. Suddenly I have to scroll to see the text I reply to. Suddenly my gestures have less space than I'm used to. Something like a Fennec sidebar with swipe to left or right would suddenly overlap. Please keep my windows (content view) in fixed shapes as much as possible, and keep this hegemonic in the various applications.

3) I make less errors on a keyboard; this is important when doing command line work.

4) If you say its only needed when you are typing that is true however the exact same applies to a hardware keyboard use case.

We've seen some virtual keyboards here and there for Maemo 4, using QEdje and such. I think that'd be a good starting reference to see how those could be improved. Mer also has a virtual keyboard.

Maybe you can get a better answer from someone who worked on this at Nokia, like ragnar.

PS: Throughout the ages I've laughed at console games with controllers which did not have many hardware buttons, as well as iPhone. This is because users hail the gaming experience, while merely a few more good buttons would make the game performance so much more better. I seen a video of racing game on iPhone the other day. He appeared to accelerate on the touchscreen while using the accelerator to maneuver. So you have to move your hands/arms, and your fingers on touchscreen (covering it limited feedback from screen). 2 hardware buttons could have solved this. I don't think that is a good use case at all.