As to styluses, it seems to be a fairly solved problem. Most designers I know use a Wacom tablet of some description. And those with a big enough budget use a Wacom cintiq (which is basically a huge touch screen).
As for things like selecting text and other in between tasks, I agree that current solutions aren't great. However I suspect people are working on it. My initial guess after having thought about the problem for 3 seconds is that some sort of clever context aware zooming and input scaling might be a good place to start.