If this really is true, then it might appeal to a wide market, but "the" market has suddenly realised that bigger screens are better so it might not do well. Besides, if they made it smaller... what the hell would happen to the keyboard? You'd need a cocktail stick to press the keys!
@sjdean: Look closely and you'll see that's a very old Sony Ericsson OS on the "phone". I recognise it from my ex-girlfriend's T610.