I think you miss the point on the TFT (touch screen) -
Many would use it for DVD-A (audio) so that they do not have to turn on their monitor just to navigate the disk... this is just one reason for a TFT - which may explain their growing popularity.
But the ability to use it to accomodate future "virtual" buttons is another benefit. It can always be turned off - and having such a multi-function display would actually reduce clutter - not add to it.
Having it on an optional remote would be great - but then that would require a two-way communicative wireless signal... while a cool idea, the cost/performance ratio may fall outside an acceptable range. I find myself scratching my heading thinking "if it is good to have it on a remote, why wouldn't it be equally or preferred to have it on the unit itself - I would hate to either loose the remote or have it break..."
Palm OS is relatively stable - embeded linux can be even more stable since you will only load what is necessary. There are a number of other embeded OS that have a proven track record unlike your computer. I think you may be confusing your Win98 (my assumption) performance and reliabity with what would be used or recommended.
While I can appreciate the "percieved" simplicity in daisy-chaining devices to achieve specialization... how does such an approach "reduce clutter", "cost", or "complexity"? Surely the pre-pro you envision for such an approach must be designed to handled all the inputs and outputs of all these devices - forcing you to build in a lot of "extras" like inputs and outputs to accomodate a future need (and then hope that you guessed right!). I can't imagine the wiring mess...
Being able to simply swap out an outdated cardslot component with an updated replacement would itself contain any necessary connections, funtionality, and the unexpected while being much cheaper since you are not buying the entire box (pre-pro) again... just the raw module. The controls, external buttons, power, and remote would have been part of your original purchase. The OS would be able to reconfigure the TFT to then provide any new "virtual" buttons and options.
Again - the beauty of a cardslot based system would mean that both of us could use the same base unit - but if I was happy with 5.1 and you wanted 7.2 - the division and economies of scale work for both of us - the base pre-pro is cheaper - you get the ability to upgrade and I get the ability to purchase at a level that fits my needs.
And having enough "MIPS" seems eerily like a metric for measuring processing power of a processor when working with an OS... and to update a "ROM" seems equally like the same benefit afforded a good OS.