Wow look at the prices on those things. $199 for the Harmony One, and $349 for the Harmony 900. [...] overpriced pieces of plastic.
I have (and really like) a Harmony One. About 5 years ago, I still worked in the Custom A/V business, building and selling expensive systems for home theaters.
Even then we had the choice between physical button devices and touch-screen devices. Given how much better physical devices were, we'd only sell a touch-screen device if the owner was more concerned about showing off rather than actually using the system.
Devices like the Harmony One have dozens of buttons, and a minimal touch screen. You only need to use the touch screen for major system functions (e.g., activity switching) or for odd buttons (like Aspect Ratio). Otherwise, you can easily control everything without looking down at the remote, or blinding yourself when the screen flips on.
Dedicated control devices (instead of mobile phone applications) have the benefit of always being available — no need to screw around with your phone to mute or pause the TV when your phone rings. And, if you have more than one person in the house, you don't have to give up your phone to control the entertainment.
As for the price, these are specialty items, with a limited market. They are often built with longer life in mind than most smartphones, and with lots and lots of individual buttons. And they aren't subsidized by a wireless provider.