Sorry, a ten inch iBook would still be a lap-top, and would not be truly portable, while you'd be scaling down the keyboard to a barely useable size. The small iBook is about as small as a true laptop needs to be, and if anything, the trend is towards bigger laptops - like the 14-in iBook.
There's plenty of scope for improving the iBook, sure, but its size isn't a problem for most users. What is needed is a stripped down device for use when you can't or don't want to lug a £1,000-lb, 4-lb, 11-in by 9-in full-sized lap-top. Perhaps what might 'fly' would be an iBook as wide as the current 12-in book, but thinner and with the whole area below the fn/ctrl/alt/apple/space bar/etc. keys removed. This would give a portable with dimensions of 11-in by about six inches, either with a very wide shallow screen or with a 4.5 x 5.5 in screen. This would even leave space for a touch sensitive 'handwriting recognition' pad beside the screen.........
But even that would be too big - a true portable probably needs to have a closed size no bigger than a standard VHS cassette (about seven inches by four inches), small enough to slip into a big coat or jacket pocket, with real handwriting as the prime input, and with provision for plugging in a real keyboard (or even a palm-type folding keyboard).
And our imaginary device only has to do what you'd need to do on the road - for anything else you'd use a laptop or a desktop. It just has to be a note-taking/word-processing/e-book reading and perhaps e-mailing peripheral just as iPod only has to be a music player for when you're on the road, and not a sophisticated music-recording/cd-burning/recording and editing tool.
In fact it's best for Apple if it isn't and can't be a standalone device - you want its owners to have to buy or have a Mac already, making it another reason for being a Mac addict rather than a PC weenie. So if you can't do iMovie stuff on it, or if you can't run Quark, or if you can't play games, or if its internet capabilities are modest, then it doesn't matter. You might not want to give it an ability to print, even! You might even limit it to a cheap and cheerful monochrome screen. But it has to be an indispensible, lightweight, cheap 'take-it-anywhere/everywhere' tool!
Running it through an iTunes like application which would automatically synch the latest and newest, most recently edited version of your text documents (and e-mails) would make it useful and unique.
PS: Cos it wouldn't have all that electronic organiser stuff, it wouldn't actually be classed as a PDA, so Mr Jobs could still make it and not be breaking his word!