Oh I have seen the character recognition software for the iPhone (watched a few videos of it when it first came out). It is indeed a possible replacement for using a stylus (though I wouldn't argue that it's better).

As for the stylus issue, I believe there are styluses being developed that would work on capacitative screens. So in the future it does look like resistive will be dead or not the ideal choice for a device like this. But for now resistive and capacitative both have their place in this market sector. It's just more what you are going to do with the device that determines which screen to use.

Edit:

"And what about when you sneeze and sling a huge line of snot across your screen? (happened to me, seriously. Gross, I know) Wipe the capacitive screen, and it actually activates stuff, but a light wipe on a resistive screen won't."

Eww. But you could just lock the device then wipe it..I do that already when I want to clean the screen protector of the n800.