Scratches on the disk aren’t a problem; the article says that the disks are inside of cartridges. Probably something like a 3.5" floppy disk, only smaller and with an optical disk inside instead of a magnetic one.
I saw that phone-console thing in a Game Informer magazine a while ago. It seems crappy. My hatred of Cell Phones isn’t exactly making the thing look good to me either…
If this handheld could let you play PS1 games it could easily beat out Gameboy, atleast in the RPG feild. Although Nintendo is bringing back Mother and Mother 2 (Earthbound) for Gameboy Advance. That could create a little compitition.