On the flip side of this...
I recently got a Galaxy Note II. The 5.5" 1280x720 screen on that is pretty darn amazing. It's dimensions are a bit wider and about 1/3 as thick as my Pandora. Quad core, 2GB RAM, 16GB onboard NAND, 64GB microSDXC (arriving today), 802.11n @2.4&5Ghz, bluetooth, HDMI output through the micro USB/MHL port, etc...
Thinking of what all is crammed into that package - the Pandora 2 should be able to have similar specs, more battery, dual SD slots, keyboard and gaming controls and fit within that footprint at twice the overall thickness - i.e. <=20mm.
The biggest things that would prompt me to purchase a Pandora II would be the things that phones don't have. Full Linux OS, full sized SD slots, USB 3.0, keyboard, gaming controls.
Of course I'm in on the Kickstarter and the ICP2 will cover those last two. So, really - it's the bits that make it a computer instead of a phone/device that make the Pandora special in my gadget collection.
Still, back on this topic. After using a 1280x720 screen for a while - and turning the fonts just as small as they can go on Android - that resolution if very good at that size. So I think the team is on-track if they use a 1280x720 resolution or greater for the Pandora 2.