It's not an issue of screen size, but input.
The on screen keyboards are tiny, and most people do not want to bother learning the correct way to do handwriting recognition. Even some PDA's come with a thumboard, but that's even a bit tedious.
I have an iPAQ 5550, and am thinking of getting a small full size collapsable keyboard for it, so I can type Word documents on the go. Though at that point, a lot of people would rather have a laptop.
As for web-browsing, I like it. Many sites have PDA sized alternatives, and it's really quite amusing. The downside is with Pocket IE, you can only have one window open at a time, and the features are limited.