Okay. Here. Look at this image again:
Pay close attention to how the person is holding the pad. Imagine if there were analog sticks rather than slide pads. What would their hands have to do in order to reach the sticks properly? Would it be comfortable in your opinion?
EDIT: And notice they're not really wasting any real estate on the controller in those areas. They're trying to make the thing as small as they can horizontally given the screen's dimensions.
I agree with the point you're making on the use of slide pads versus analogue sticks. 3DS convinced me that it can work and, as you've stated, how you actually hold the controller dictates to a large extent what you put on it (and where you put it). Also, Nintendo is a company that puts a lot of time, money and effort into research and development. They would have been sure to make a thorough test of various analogue options. The decision to go with slide pads would not have been taken lightly. And the finished controller looks gorgeous! My only concern is that it will take too much focus away from the Wii Remote and Nunchuck combination, which has been a fantastic innovation in game controls. For FPS certainly I am going to demand the IR controls of the Remote+Nunchuck. Black Ops, Conduit 2 and Goldeneye all served to remind me of how graphics hold little importance when the control system is accurate, dynamic and fun to use.