Just because Nokia's half-assed attempt however many years ago failed miserably doesn't mean the concept of the N-gage itself was untenable. For one thing, the iPhone and every smartphone since have already at least partially done what the N-gage was trying to do. But I've actually been hoping for awhile that Sony would take things a step further and create a Vita phone, and Microsoft creating an Xbox phone would be great as well. (Sony doesn't do too well these days at creating new niches in the marketplace they just follow so Microsoft or Apple making a hardcore gaming handheld phone would probably make it more likely a Vita phone would be released.)
The N-gage failed for so many reasons, but two that stick out immediately are because the hardware of the time just wasn't ready and because Nokia wasn't a gaming company. Neither of those problems are nearly as fatal now.
Modern smartphones cram much more advanced hardware into a much smaller package than the N-gage. The only remaining issue is that the marketplace continually moves towards thinner and lighter phones, which means it could be hard to get physical controls into a phone. Personally I would like to see the sliding form factor make a return, but I don't know that many others would. Physical controls are also a must for this product to exist conceptually. Otherwise it's just another smartphone.
And while Nokia was not a gaming company, Sony and Microsoft certainly are. Much more than Apple or Google, at least. A gaming handheld phone from Sony or Microsoft could hopefully attract developers. The problem is that Sony's existing gaming handheld doesn't really attract developers, and Microsoft has never created such a product. Regardless, they would have a better shot than Nokia did back then. I think it would help if the Microsoft handheld ran Windows Phone or the Sony handheld ran Android, to give them a range of games right out of the gate (a significantly smaller range for the Windows Phone handheld, admittedly.) One issue is that there's not a lot of overlap between AAA developers in the west and PSV/3DS developers. Most quality handheld games still come from Japanese developers, who might not want to go to a Microsoft device. So Sony might be a better bet, except most of them don't go for Vita either.
There are still lots of benefits. If this device is a phone, that means it can be had with subsidies, and so Sony or Microsoft would be able to create a $600 or $800 device, because people would only be paying $100 or so up front for it.
