But is that 5Mbits just an on-chip framebuffer? I see no mention of whether the PowerVR has its own dedicated memory, shares that framebuffer memory (which is unlikely as it would be hard to fit full screen display + intermediate structures into that space) or accesses the main memory (which I think is most likely).

If the powervr memory is in fact part of the standard RAM, there's no reason why its output can't be copied into the LCD controller framebuffer. This will still have the same bandwidth issues, but the point of the 3D hardware isn't to do more frames, it's to cut the cost of doing the 3D transforms on the data.