Start with the iPhone/iPod Touch's design, and scale it up to about 10x7, the same size as a typical large format paperback like an O'Reilly book. Aside from built in WiFi and BlueTooth, he device includes an Express Card slot and several USB ports, so that it can accommodate the broadband network cards offered by both the HSDPA and EvDO providers. The underlying specs will be closer to a MacBook or MacBook Air.
In iTouch mode, it will be able to do all the things the iTouch does, as well as connect to the 3G cell phone networks with the appropriate adapter. Email, web browsing, etc. are all there. This mode will operate in a low power mode.
One of the "applications" available in the iTouch interface will be an option to boot a full os, which can be some combination of Mac OS X and Windows via bootcamp. Now it becomes a full laptop. A keyboard and mouse can be connected via USB or BlueTooth. An external monitor can be connected via a mini-DVI adapter.
In my view, this would work very well for digital nomads and road warriors. The small device would fit easily into almost any bag, and wouldn't require a true laptop bag. It could be used on a plane or a park bench. It could be whipped out at a moments notice and immediately be useful. At the same time, it is easy to throw a keyboard and mouse into a bag with clothing for a business trip, and have a nice environment to work on documents and presentations at the hotel. When visiting a client, it could be plugged into a projector and run the presentation just as well as a typical laptop.
The problem with this scheme is that the price point wouldn't be anywhere close to the netbooks. This would be a $1,500 machine that would compete with ultra-portables, potentially remaking that segment. I can imagine that the technology could quickly trickle down, however.