So much wrong, I don't know where to start.
1. Compare apples to apples. What could something the size of a phone do in 1998?
2. The current resolution of the iPhone 5 is 1280 x 2272. The game ran on 800x600 with a fraction of the colors,
3. That game sold for what... 35 bucks? Are you comparing what two developers make in a month and a half, selling for 2 bucks with a AAA budget game? Yes, an HTML5 game is going to be slower, but compare one of the top games for the mobile systems and the mobile game today is more impressive. Perhaps 'Need For Speed: Most Wanted'?
4. Clock Rate Isn't Everything. It never has been. Further, the equivalent Pentium 133 laptop is lasting 1.5 hours max with a battery the size of a half dozen iphones. Power matters.
5. Could a mobile-sized device, sans phone (FCC issues) be created that is tuned for speed instead of battery, with a lower grade resolution (compromise for battery and speed), that was faster? Sure. Would anyone buy it? Probably not. Engineering is about compromises.
And yes, I'd like to be able to use my computer as a general purpose device, but nobody has stepped up to the plate yet. I mean, we could start with a Cyanogen mod and build up from there, but it's a bigger effort than it looks.
But I'll tell you what, let's put it on the backlog. ;)