Well, given that they have made hardware choices without posting video's before, I get the feel that MWeston isn't too happy with the 1mm analog, and wanted to see if the community agrees. I've been told that this is primarily a portable gaming and emulation device, and in that case, you'd want as much analog control as possible (some of the arguments against, sound like they are from people less interested in gaming, more in the UMPC aspect).
So if indeed gaming is the first purpose of this device, 1mm of action is not enough. Also, if N64 really does get ported, there is no way it will be playable with the 1mm movement. Even from a UMPC standpoint, 1mm movement for mouse control means either really slow movement, or really uncontrolable acceleration when the 1mm is reached. Also, any linux ports and other mouse based action games will not be able to effectively use them.
Let's look at the pro's vs. con's for a sec. A 1mm analog really drops it's use for gaming. Like one poster said, it's more like for menu navigation at that point. So what is the advantage of the 1mm? Time, it comes out sooner, that is all (it's placement for smaller hands isn't something I'd consider as a big enough advantage to include). The cons of them is basically, for gaming you now have the gaming control set of the GP2X (I mean the game controls specifically, no analog all digital, even if you have somewhat more of them).
Now lets look at using a larger one. The benefits are that they can now be used for gaming. Also, for it's umpc aspects, you now have greater mouse capability. The con: You have a delay.
If we are sticking with the idea that this is a game device first and UMPC second, the answer seems clear. It's the gaming concerns that come first, not the delivery date (if I've correctly absorbed the designer's stated positions on these forums and elsewhere). Small analogs = slow mouse movement -or- hard to control acceleration when the analog reaches it's maximum movement. Yes this can be tweaked, but it will never be perfect. The thumbs aren't necessarily the most dexterous digits.
Remember, it sounds like a small amount of difference, but we're effectively talking Area (2D), so 1mm vs 2mm of movement = a difference of 4x the amount of play.
As for people who have used many analogs, I trust your opinions over those who have not, and you all seem to agree with the above. Personally, I've tried playing n64 on a small analog (Goldeneye) and it was unplayable.
/Sorry if I sound presumptuous, trying my best to not make my points come from a personal place. Though personally, I agree with finding a better solution than 1mm of action on the analog. Yes there are one or two personal points, but to focus on those and not the main body of the post, would be disingenuous.