How do you know where to tap without seeing your fingers on the phone screen? It's not like you can feel buttons
Yeah, I don't see how it'd be at all usable. Being able to see your finger relative to the screen is rather critical for smartphone use. Very few applications have interaction areas large enough to be used blindly. Beyond that, the phone itself wont be able to track correctly in a 3D space relative to the headset, so its display will just be arbitrarily superimposed over the VR background regardless of where the phone actually is.
I mean, you could theoretically rig up some controller -> phone interface mechanism, but that seems clunky as hell.
Edit: Now that I think more about it, depending on the capacitive touch tech in the phone, it could potentially pick up the finger location slightly before actually having the finger fully down and show a cursor in the VR overlay.