Most people that get a smart phone have unlimited text/picture message/video messaging on their contract. Alot of people even have unlimited data. As for the contract, I'd rather sign a 2yr contract and pay $150-200 for the phone instead of flat out buying it for $600+, it's not like I plan on changing companies all the time.
And they aren't going anywhere. It's very handy to have a internet capable device everywhere you go. Kids are growing up with them now, so they will continue to want them.
As for the touch screen, it's all dependant on what you are using it for. For alot of the stuff I play on my phone, it's the best input method I could think of. Trackballs are horrible inputs for some games, but essential for others, the same concept applies to touch screens.
Alot of newer phones are 960x540 resolution with 1GHz dual core processors, it may not be HD, but it's far above most portable gaming systems. And on Android you can get an app to connect a PS3 controller to your phone via bluetooth for better gaming support