Right now on phones we have games like Zeus X, and Asphalt 5, that look pretty decent. I mean, current smartphones have graphic cards about 1/3rd as powerful as a PSP's. I figure with upcoming 45nm A9 based designs, we'll see a bump to at least 5 times the performance of current mobile GPUs, like PowerVR SGX GPUs capable of around 40 million triangles per second. Combined with the dual core CPU, and on-board RAM, and storage, this would likely put smartphones in a place where they can outperform a PS2 in gaming ability. And we're not talking about the distant future here. Tegra2, Moorestown, and possibly Qualcomm and Samsung based A9 mobile platforms will all be pushing around 80 million triangles per second soon.
Now, considering that the screen resolution that needs to be rendered is only like 480 by 854, if someone programed specifically for the smartphones... we'd be able to see some pretty damn good looking games.
Thinking about this, something that would translate easily to touchscreens would be a MMO like WoW. I've played one handed plenty of times, using only mouse to click ability buttons, and click to move. On a touch screen I could press ability buttons with my finger, and touch the screen where I want to move. Camera panning by touching touch and drags... it'd be as simple as a web browser. Double tap to move, drag to pan camera, icon button presses... I figure they could add gesture support too (like seen in browsers like Dolphin HD).
FFXI had WoW level graphics and ran fine on the PS2. If someone actually programmed an MMO for these upcomming A9 smartphones, it would run better!
I hope a company like Blizzard looks at this, and has the light bulb go off. I mean, seriously. Well, maybe not... a rich MMO experience on a smartphone would likely result in some ridiculous all night bedroom gaming sessions on my part, that won't be healthy to the rest of my life.