I've had a HP PocketPC device for about a year and a half now, ever since I bought it at the 2003 Professional Developers Conference in Los Angeles. It basically served as an expensive doorstop for about six months, as I lacked a Wi-Fi network, and handhelds are only marginally useful (at least for me) in the absence of a Wi-Fi network. That's been rectified, so now I use it daily as a cheap and fast way to check e-mail and surf the Web without going through the trouble of booting up my laptop.
I would have found it useful earlier, however, if it had provided more storage space. I wanted to use it as a music player. Unfortunately, with just an SD port, the limiting factor is the size of SD storage cards. At the time, the biggest I could find was 256 MB, though more space is now available. That made handhelds poor music playback devices, leaving dedicated players to fill the void.
Apparently, the industry has awakened to that fact. PalmOne has a hard drive-based device slated for release May 18, and Dell has one planned for release in November.
I don't think handhelds are going to displace dedicated music devices, any more than integrated cameras in cell phones will displace standalone digital cameras. Then again, there is more room for handhelds to push back against dedicated music devices than camera phones against digital cameras.
Integrated cameras are oriented around the sending of MMS (picture messages), which means there isn't much incentive to provide hi-res camera capability. Handhelds, however, can act like programmable iPods, and can perform all the functions of a dedicated player and then some.
Of course, handhelds are often more complex than a dedicated music player, and in particular, the market-leading iPod. Nokia sells better than Ericsson due to well-designed handsets, and iPods own the portable music market for the same reason. Task-specific devices will always appeal to someone who wants something that does a simple task extremely well.
Still, I see a future for handheld as music player, one that will start to put pressure on the market for dedicated players. What do you think?