A very good point. The other possibility would be a video iPod with a clamshell form-factor. The micro-laptop there have been rumors about might do it: a small computer with a cool G3 processor (say around 400-500 MHz), a 7 in. 720x480 LCD touchscreen, a 100 GB iPod-sized drive, a stylus, a keyboard and touch pad, Tiger, Inkwell, and the iPod port, one FW400, one USB, and an audio/video out, 256 MB RAM, Airport Extreme, 5 hours of battery life, selling for say $699-$799 (basically, we're talking about combining an iPod photo, an Airport Express, and an old iBook). No optical drive: you hook it up to your Mac mini or PowerMac or iBook with the iPod cable and install from that optical drive.
Edit: come to think of it, the FW400 isn't necessary, thanks to the iPod port.
Second Edit: Now I've got it. No keyboard. There's a USB port! Bluetooth might be nice, but now we're getting above the $799 price limit I've set. Make the front lid just strong enough to serve as a stand, folded back under the screen - the feet on the stand could serve to space the screen a little from the lid. A click-wheel to the left of the screen - might need to reduce the screen a little. Put back the FW400, but with an iLink-style interface (for use with your video camera - make the iBook mini relate to your video camera the way iPod photo does to your still camera). Simplify the finder a bit - base it on the simplified finder in OS X, but make it more modal (but allow power users to access the normal finder and the terminal). No need for the mini-VGA plug of the iBook, or the power supply plug.