I'm amazed how close that ~2004 prototype is to what they launched in 2010. I'm really curious what the software on those early models was like.
I wouldn't be surprised if they just ran a skinned full Mac OS X on this one, because it was already there, and it would mean the UI guys could get to work right away on cool stuff (like rubber band scrolling as mentioned). The fact that it's so fat tells me it probably just had a G3 or G4 inside, basically a MacBook with a touchscreen and no hinge.
If this ran software at all (Apple tends to develop the two in isolation: no doubt around this time some people were working on touch interfaces, but nowadays the two don't tend to meet until they're quite far down the line) then I suspect it would have been test software similar to Switch Board, which they install on prototypes at the moment) unless it's pretty close to production.
I would be surprised if this was running G4. Apple's dissatisfaction with IBM was growing circa 2003-04 and if they were noodling around with the form factor they would have been under no pressure to put in a production CPU; they'd have gone with the best technical solution to the problem (which I doubt is a G4. Might have been another IBM chip).
You sure it was in the keynote? I seriously doubt that, I've watched that presentation (his best, no doubt) several times. He wouldn't ruin his biggest product announcement mentioning Linux :)
I think it was mentioned in the Steve Jobs bio. A team (Tony Fadell & iPod team) wanted Linux and Scot Forstall wanted OS X. Scott won.
Edit: It was first published in Business Week a week after Jobs's death: http://www.macrumors.com/2011/10/13/scott-forstalls-personal...
If it had any hardware, it'd be easiest to just reuse existing stuff - basically an official Modbook[0], only with a capacitive instead of resistive touchscreen.
http://bits.blogs.nytimes.com/2010/06/02/first-came-the-idea...
At the time, only a Public Beta of Mac OS X had been released, which certainly didn't have support for multitouch gestures. Geez, the iPod hadn't even been announced yet, and all Macs had PowerPC processors.
If it was a higher profile machine it would have gotten a redesign by now. Hell, the only machine that spent more time in its final form factor was the Xserve, which literally can't be redesigned because there are only so many ways you can build a 1U rack mountable server.