250MHz is a little slow, yes, but remember that this chip is only one of the three ARMs inside. Then say there's one ARM for iPod A/V software, and another ARM for Safari-based apps... mail, browser, iChat (presumably).
In terms of graphics, however, considerably slower processors have been computing considerably more complex things, and at the same time driving considerably bigger displays... for years.
It all works out.
-Clive