The problem with remotes is that they don't give the user any context. A smartphone as a remote could solve this very nicely.
Imagine an app that could let you view stills/descriptions/scheduling of all shows on right now on your iPhone. You could scroll through them. Maybe read reviews of them on your phone. Interact with it like you'd interact with any other app. When you are ready, you just press a button and your cable box tunes to it.
Imagine DVDs that could display meta information about what you were watching on your phone while you were watching it. (If that interested you).
Imagine if your TV/movie paused automatically when you got a phone call
One person could watch a show, while the other person see's what else is on without interrupting the display.
What functions do remotes provide anyway? It's pretty much selecting channels, managing volume, selecting devices, managing the DVR and turning it on and off.
As for the lack of physical buttons on touchscreens - the iPhone already has a volume button. Who's to say that it can't someday control the volume of an entertainment system it is synced to. Or have it's power button affect the tv instead of the phone. (Give you two options of things to turn off).
Everything else you do with a TV, a touchscreen would be MUCH better suited for.