To me, this is completely beautiful. This is the direction I see small electronics going. You won’t have to design physical buttons, because the buttons will be placed with software. They can adapt contextually. In one situation you have a menu of application launchers, and in the next situation you have a number pad. A firmware update could add something like a push-to-talk button without any changes in hardware needed.
My only fear with the touch screen is the lack of tactile feedback. Blackberry/Treo junkies will have a hard time giving up touch-typing on a thumb pad. However, Sony already has technology that uses small piezo-electric elements to vibrate the screen when a button is clicked, giving that push-button feedback that we depend on to let us know that we’ve activated a button. I believe that they had also made it so that if you slid over a button, the screen would vibrate, letting you “feel” where buttons were before pressing down hard enough to activate them.
At any rate, I see a lot of very exciting things happening in this market. How will these things influence product design?