that mockup is a start, but it isn't realistic.
You couldn't fit a battery in the rest of the space in that device that the optical drive didn't already take.
No internal optical drive for something that small, but perhaps the MBA external optical, or wireless-N drive-co-opting from another computer.
Here's how I would do it:
Take MacBook Air's bottom case, and remove the top surface keyboard/palmrest, and remove the screen shell.
Shrink that tapered bottom case to about 9"x5.2" rectangular. Load it up with a mobile processor, like Intel Atom, removable RAM, removeable battery (plug on leads, not soldered) and replaceable solid-state storage flash memory arrays, like SSD, but not encased in an extraneous drive enclosure.
Lay an 8.89"x5" (16x9 format) multitouch high-res screen and glass cover on the top, with a beveled top edge, like the iPod Touch. As seamless as possible, without a raised edge around the glass, like some tablets have, and the magazine mockup has. The iPT, and iPhone don't have a raised edge, but a beveled edge. a raised edge would just catch dirt, and impede gestures near the edge of the screen. Perhaps an iSight camera in the glass bezel edge.
Full complement of wireless protocols, wifi(a,g,n), 3G/edge cellular, bluetooth, etc. 2 USB and an ethernet and external video break-out ports, possibly through a dock-connector, or something similar. Completely solid state, no moving parts, no hinges, though. Dockable to desktop implements (keyboard, mouse, larger screen, network drives/printers/storage via gigabit ethernet when docked, and still a multi-touch and draw-on tablet input device, even when docked.)
Running a version of Mac OS X somewhere between iPhone, and full version. Mix of quick-access nearly always-front icons, and full-screen mode for apps like iTunes/iPod-mode, but also full "finder" file and disk resource management. Most or all of the operating system's features, just quick-access touch-driven layout.
With a bluetooth earpiece or headset, and an iSight camera in the device, this thing could be a videophone over IP, or over cellular networks. stored movie, or co-opted-optical-drive/external-drive DVD player. Large-capacity and large-screen multi-touch iPod, Full function file browser and editor, wireless internet terminal, and capable of running nearly all normal Mac OS programs, save for the most resource-intensive pro-grade programs, which require more hardware.
That would be what I would do.