I don't think Sharp is that worried, since this doesn't seem to be slated for the Asian (Japanese markets) where Sharp is focussing.
And the Japsnese and Asians like keyboards a lot (even on phones), hence the popularity of SMS out there - so something without a keyboard might not cust mustard with the discerning Asian market.
Now in the US market its a whole different equation. People might be content to buy this thing if only for movie playback and Audio (what with the multiple formats its supporting). But if Sharp were to reconsider the US markets again, then they had better spruce up their (US/Europe) act.
Apart from the bigger screen and Wifi/BT, I don't see what extras it brings that the Zaurus doesnt.
just my 2 cents here