Their onboard batteries are to small to support the needs of a hard drive no matter how small. Have you ever plugged a micro drive into a pda w/ a cf slot? It made the battery life in my friends PDA go from several hours to about 15minutes.
It would also be cost prohibitive. A 40gb 1.8" drive would add several hundred dollars to an already large price. The most common use for PDAs is not for media but for office/corprate tasks (ms office, schedules, etc). Those things dont need much space at all.
These office/corprate features are now found in cellphones so there is less demand to hold yet another thing in your pocket. If you want movies and stuff just get one of those portable media center things that toms reviewed.
Some of your points are quite valid, but the niche in the market demanding a handheld multimedia device (High Perf PDA) is growing by the minute. 2.5" Drives don't cost a lot anymore, even for the fast ones - but you could easily squeeze a 4200rpm drive into a PDA without adding too much bulk - they do it quite happily with iPods and other mp3 devices?
I have to disagree with you about the batteries though - they are perfectly capable of supporting a small hdd. While the iPods of the world don't have high resolution LCD screens and power-consuming processors to support, they nonetheless cope just fine with really quite average batteries.
If you stuck a high capacity battery with a high performance PDA and coupled that with a 2'5" HDD, you would certainly have a high performance handheld computer, at the cost of slight bulk, and a reasonable price increase.
While they're there, may as well add an AV-In/Out port (possibly an extended battery pack) and some intelligent software, and you'd have a portable VCR that you could basically take anywhere with you.
Even worst case scenario, they could do what (i can't remember the name of the device) did, and separate the PDA from the HDD in the form of a 'backpack' so to speak - that the PDA plugs into the backpack and suddenly you have a bigger PDA, with hundreds of times more storage.
Well that's my take anyway,
RaPTuRe
Who's General Failure and why's he reading my disk?