To be fair, Microsoft has tried portable, non-PC devices for more than a decade and failed miserably, largely because they cling to the windows metaphor on small screens.
But to be more fair, in the past MS didn't really change the UI at all -- they just said, here's a stylus. In this case they actually provide a radically different UI.
It's the UI from Windows Phone 7, which didn't exactly light the industry on fire.
No, but I think that had as much to do with marketing and overall execution than it did the UI itself. I have to admit that what I've seen of the WP7 UI looks quite nice, even if it pains me to complement MS.
If they execute properly on this I could see it being a big hit.