Ah, I thought you biggest problem with smart phones was that most have smaller screens (my touch has a 2.8" screen). I wouldn't be surprised if android is put on a device that is the size of an iphone or the Touch HD. I would be surprised however if said device was not also a cell phone. As far as I know, Google is not really interested in pursuing the PDA market as most analysts believe it is dying. Maybe a PMP... anything else starts requiring a more full featured OS.
As for me, if it has a 3.5"-4" screen (i.e., still small enough to fit in my shirt pocket), I very much would prefer it to have phone capabilities. I would buy an IPhone if ATT didn't charge so darn much for service...