From WIRED magazine's November 2006 “ping” column:

When it comes to gadgets, how small is too small?

Paul Smethers
Coauthor, Five Myths of Consumer Behavior

If a gadget is meant to be portable, it should almost always get smaller—or at least thinner. The key to creating a successful mobile device is optimizing its key features: size, weight, and battery life. Unfortunately, many companies focus on adding more features, which require the hardware to stay the same size or even grow. One of the best examples of this was the original inventor of the PDA—not Palm, but Apple, which introduced the Newton in 1993. Apple failed by making subsequent versions of the Newton larger than the first. A couple of years later, Palm introduced a compact device with fewer features, and it immediately became successful. Apple took notes, though, and now wastes no time introducing smaller iPods.
 

Last paragraph (edited out for space by WIRED):

The only exception to this rule is when the reduction also affects the device's usability. For example, if a larger screen helps the user solve their task, such as for SMS on a mobile phone, than the focus should be on thinness and weight instead of smaller screens. If the keyboard is required for entry, such as for e-mail on the Blackberry, then don't reduce the number of keys to the point of impairing data input. The new Blackberry, which tries to halve the number of keys, is an example of trying to cut this corner, and I suspect users won't appreciate the new complexity.