This is a bit of a crazy idea, but it constitutes part of the reason I keep harping on about the importance of full-blown desktop operating systems in cell phones. Yes, it creates developer consistency, meaning that the same skills used to develop apps for desktop computers map directly to cell phones applications. And yes, it means that developments in the desktop OS can be rolled out much faster to the cell phone, as the two environments are, for the most part, one and the same (not exactly, as you have different form factors / UI conventions, but you catch my drift). Both of these things accelerate the important role cell phones are going to play in our daily lives as these devices get more and more powerful.
Think about that growing power. Today, iPhone storage maxes out at 16 GB. Imagine in 10 years, when it could max out at 1.6 terabytes...or more. At those levels, people will start to carry around whole video libraries, every document they have ever created, and, of course, ALL of their music.
Obviously, the application story will have evolved in that time. Applications usable while riding on a bus will still need to accomodate the small screen of a mobile device. With that kind of power, however, a mobile phone in theory could act like an ultra-mobile computer.
This a variation on a theme I discussed back in 2005, where I wondered whether you could store an entire operating system freeze-dried on some kind of USB dongle-sized device that could be plugged-in to a "docking station" to provide important things like a keyboard, mouse and computer screen. Well, a cell phone isn't much bigger than my hypothetical USB dongle (and standalone usable, to boot), and I see no reason why it couldn't be "docked" just like that hypothetical USB device could be docked.
People could buy such "docking stations" for their homes (quite cheaply, I might add), but more to the point, they would be a rather cheap way for coffee bars, restaurants, and other public locations to offer the kind of "sticky" features that incentivizes customers to return. Most long-haul airlines now have screens through which they offer video services embedded into the back of seats. Imagine if the food tray had a touch-sensitive keyboard embedded into it, and the armrests had a place to plug in your phone?
Clearly, the UI when docked would be different, but that's why it is so important that both iPhone and Google's Android initiative are based on full desktop operating systems. Some applications would be suited for the small screen, and others would only be usable when docked (though I bet most would offer functionality in both modes). It does, however, seem quite a feasible extension of trends in the smartphone industry.
Smartphones, in other words, wouldn't just be phones anymore. They would become ultra-mobile computers, and that is very interesting.
If Microsoft could do something like this, they would clearly have an advantage, given their desktop market share.
[Additional Note] Just caught this bit at the end of a post by Mary Jo Foley:
From recent executive remarks, it sounds like Microsoft is trying to get Windows and Windows Mobile to be more in sync. Might this mean with Windows Mobile 8 — which Microsoft has told certain folks will be built from scratch — Microsoft might make Windows Mobile a “real” version of Windows, with the same core as Windows client?
Let's hope so. I think if they don't, Microsoft will have missed a rather large opportunity.