The last time I checked, smartphones with HDMI out were rather expensive (>> $100) and didn't work with control pads (I never really cared about smartphones though, so this may have changed). Expecting it to outperform a PS3 or Xbox 360 is asking rather a lot - those are sold at a loss, with money being made back on the games.
Think about it a little longer before you discount it. It's a games console that's very cheap and comes with a lot of free games. Android is a popular platform and this would give people without much money or technical know-how (we're all pretty clued up on this forum) a chance to play well-known, modern games.
I can afford an Xbox 360, but I'd rather get one of these - the ability to hack it sounds fun, and it would give me a chance to play with Android - what's not to like?