Who would use something like this as their sole machine and desktop replacement? Umm, that would be me. At one time, I had 5 Macs in the house until I eliminated all except my 12" iBook and a Mac Mini (which serves exclusively as a very expensive DVD player).
I'm a designer and I do all of my work on the iBook. And while I don't handle video production, I'm not a light weight user... I deal with large Photoshop images, Flash development, and book-length InDesign docs. And even at less than 1GHz, processing hasn't been a major bottleneck (I'm not a gamer).
The iBook became my main machine because of my lifestyle. I require something portable: 1) so I can show clients work in progress; 2) because I like to work everywhere... on my couch, in bed, and at my favorite non-Starbucks coffeehouse; 3) I have friends who like to get together and compute/work/browse communally; 4) Google at my fingertips (WiFi depending); 5) I don't have space for a desktop. And get this, I want to go even smaller.
The iBook is freakin' heavy as a constant companion (try picking it up with one hand). It's also thick... my wrists begin to hurt after a period of typing from balancing on its sharp edge. I'd also like to not have to carry around a conspicuous and awkward-size laptop bag (an ideal size for a machine would be something that could fit inside a zippered notebook or a "man-bag"). So a fully-featured sub-compact would be the ticket, even without the IMHO rarely used optical drive.
But it would be useless to me if it was based on a watered-down OS and couldn't run real apps. Display size would also be crucial... just wide enough to display a typical website layout without having to zoom/scroll (i.e., not a pod-sized tablet). For detail work, I'd span Photoshop (et al) to my larger monitor and use the small screen for palettes.
An opinion on the touch screen nonsense: my fingers are bigger and less precise than a cursor and on-screen keyboards cost real estate. That said, I could easily see the trackpad becoming a tertiary screen for widgets.