Epic Demonstrates Unreal Engine 3 for the iPod Touch/iPhone 3GS
anandtech.com
anandtech.com
I would pay for that (maybe you could even bundle some games with it!).
Latest news about UT3 on Linux: http://www.phoronix.com/scan.php?page=news_item&px=NzI4N...
Then you will also start to have flash and other software rendered stuff being fast enough. But battery technology needs to advance further as well.
Couple years out except for the cutting edge like the iPhone or the coming Google Phone (HTC) which has Android 2 which also has OGL ES 2. Android will also have the NDK (native) to compete with the native iPhone SDK to speed things up. It is just like coding for old hardware but with better software. So native, graphic tricks, hardware rendering, etc are all relevant again for a moment.
It is rumored to be so: http://www.fastcompany.com/blog/kit-eaton/technomix/guts-goo...