The "form factor" of a pants pocket has not changed considerably, since the inception of a pocket, which probably started as an external pouch hung from the waist. If anything, it's generally gotten smaller as pants have become tighter and more stylish. Or as I like to joke, "there's no Moore's law of pocket size!" At the same time, smartphone UIs have enabled us to do more with the same physical form factor. For examples, using more of the façade for display area, flip-out (or virtual-only) keyboards, multi-touch and momentum scrolling allow a much more rich experience, and thus those devices serve more of our needs for more of the time.
On the tech side, Moore's law is alive and well. Looking in the ARM space (given iPhone and Android are currently ARM based), SoCs are getting some real oomph. Nvidia's Tegra line for example, runs in the 700 .. 800MHz range, decodes HD video, and supports OpenGL 2.0 2D/3D. TI OMAP and Qualcomm Snapdragon are promising SoCs as well. If needed, ARM's future Cortex A9 architecture supports up to 4 cores.
If newer Android phones look anything like the concept pics of the G2 (it's gorgeous, uses more of the surface area for display, higher resolution, 3D, etc), we're headed for a time when more of our mobile lives will be served by our smartphones. You can game on them, browse the web, store reams of pics, files, and even HD clips or entire videos. When we get to the point we want to utilize a bigger display/keyboard, then my contention is we'll use something big enough to matter. Like for examples, a netbook/notebook/PC/TV. Or a smartphone terminal.
MIDs are not big enough to make that transition matter. And they're too damn small to fit in a standard pocket. So what I see happening is that the concept of a MID and a smartphone will fuse together in the minds of the press. Everybody will declare victory... "see, tons of MIDs sold, they're called Android/iPhones." But the physical form-factor will be a smartphone.
Disclosure: no positions