Techworld who had a word with a Microsoft representative
reports that fragmentation could also become an issue for handheld computers:
If most files are written sequentially what happens when earlier files are deleted and then a new files written? There will be 'holes' throughout the file system which new files will be spread across, thus fragmenting them... Microsoft says its measures will 'reduce any kind of fragmentation.' It doesn't say it will get rid of it. So, over time, the file system in a mobile device's hard drive will become fragmented and, by extension, its performance in finding and assembling files from its storage system will deteriorate.
Which leaves me to wonder: How many Pocket PCs out there are equipped with a hard drive?