Because there's a difference between sizable unique buttons you can hit and a full keyboard where there's a chance of hitting the wrong key.

IMO, it seems great, but at the end of the day I agree that proper gaming takes place at home, a phone is something you pick up for a short time, maybe half hour on train bus etc, you just want a little distraction, not an involving game that you have to get into as by the time you do you will be at you stop etc... I dont know how big the screen will be, but it will either make the phone too bulky (bigger than N900) or screen will be too small to look at for any length of time.. A mobile phone should have games, but quick simple games that dont need a lot of time invested... I think touch screen phone and MP3 player fit well together, but trying to add a proper gaming element, like shrinking a PSP into a phone just seems a step too far, Depends what you want many feature done ok, or fewer things done much better.... For instance a PS3 plays Blueray, but if you are really into watching films you would buy a stand-alone better quality blueray player....

The PSP Go isn't that much bigger than the N900 (closest thing to the PSP Phone). And considering I use to carry a Nintendo DS in my pocket (which is also bigger than the N900)...The PSP has a 4 inch screen which works wonderfully with the games I tried on it. This thing apparantly loses .3 or .5 inches but keeping the PSP Go's form factor.

Most modern handheld gaming systems (Nintendo DS, PSP) and even the iPhone support sleep mode or instant pausing of games. PSP has a switch you hit to put it to sleep (hit it and you resume where it went to sleep). DS, you just close the lid (brilliant! ) and iPhone you just hit the physical button in the front.

And I've been playing portable games since Gameboy (I admit I stuck mostly with Nintendo's line, didn't really play Sega handhelds that often). So there are plenty of great games that you don't see on the console. Though recent PSP games are just ports of console games...

The biggest problem with handheld portable games is not the screen size but the controls. A form factor like this would be great for a gaming phone. Touchscreens IMO are terrible for any serious gaming (I've tried different iPhone FPS..). It needs something more like the Nintendo DS which has physical buttons but a touch screen as well. Hardware keyboards work ok, but its no subsitute for an actual game controller. Now if you had a full sized keyboard like you do for PC gaming that would be different.

You should take a look at the Nintendo 3DS.

Man.. in between a 7-10 inch tablet, the Nintendo 3DS, and the PSP Android Phone version 2 (please let there be a version two since I'm not upgrading from my N900 until Dec of 2011) I'm going have a hole in my pocket.