I really like the idea, but not so much the implementation. Two observations, and one theoretical quibble:
1) On the hardware side, turning the multitouch interface into a second touch screen that could work as a mouse-like input device (like the video shows), or bring up a keyboard (like the lower half of the iphone, only taking up the whole space) would be preferable. A keyboard without physical feedback would be awkward at first, but after getting used to it, you could do away with a physical keyboard entirely. You could also stick meta-materials from the UI down there. You could have something like a system dock with quick links to open programs and switch windows. And you could have, say, the clock, wireless indicator, battery indicator, etc. down there. It would cut down on clutter on the main screen.
2) On the software side, I'm not sure that I see the advantage of their version of a linear window manager the way they have it set up. Instead, it seems more useful to fan applications in and out, turning the name bars on the side into tabs. Window one opens and slips into place with its name bar on the left side of the screen. Window two opens from the right, partially obscuring window one. Window three moves window two all the way to the left, leaving window one entirely obscured, except for a tab. And so on. That way, you have a visual representation of every window on the screen at all times. Much simpler to track than having to zoom out.
And my theoretical quibble: I know, it's odd coming from a longtime mac user, but I dislike the concept of a physical UI so closely tied to a particular software system that you have no alternative but to use them together. I look at this, and I fear "The Windows Computer of the Future." You buy a multi-touch computer that has Microsoft's future OS on it, and the hardware interface is so specific that you couldn't, if you wanted, chuck the software and install Linux. I can imagine a Linux-like alternative being written for this interface. But I can also imagine a set of patents that would encumber alternate OSes, such that you end up with a One Computer One OS system. Which is far, far too restrictive, and invites vertical monopolistic practices.