8-bit CPU with 4KB of RAM apes iPhone interface

Watching this video, it doesn’t seem very much more than a demo for a rather anonymous-looking little touchscreen device, a PMP prototype maybe. Then you find out that the whole thing is running an 8-bit processor with 4KB of RAM. Touchscreen tricks like scrolling momentum are implemented perfectly well, and there appears to be little or no lag. Pac-Man runs at 60fps, which is more than I can say for the version on my G1.
The touchscreen is salvaged from an off-brand PMP, and the CPU is a 12Mhz Atmega644 — not something I’m familiar with, but I trust the author when he says it’s about 3% of the speed of an iPhone. And it’ll render a polyhedron (though I doubt it can texture it).
The question this brings up for me is why aren’t all interfaces so snappy at this point? I understand there’s more going on under the hood in a smartphone than in a demo application like this thing, but seriously, I’m going to have lag when I hit the home button on a CPU faster than the one I had in my PC a few years ago? Make it better.
[CrunchGear via MAKE]