It would be so smart, it'd be called "Genius" (but I'm not dreaming up any new features here, just a consolidation of the best of all that's out there. My dream gadget will need another writeup on another day.
It need to have Apple's wealth of Apps and slick and beautiful design (both hardware and user interface). It'd be as thin as the iPhone4 with the camera from the new Nokia N8. It's have the Nokia's radio transmitter so I can listen to all my MP3s from a nearby radio (in car, etc.) with no wires. It'd have a MicroSD slot so I could increase the storage size and it would allow content to be copied like every other phone (except Apple) by either mini USB, or, let's be genius, over WiFi and 3G!
The battery would be at least 40% better (like the iPhone4OS says it will be) with all the SatNav and motion sense and top quality touch screen and gyroscope.
The iPhone MP3 interface is the bets I've seen. The 30 second rewind button is invaluable for listening to podcasts. But subcribing to RSS is stupidly only available from iTunes on a non-mobile computer that's in sync with the phone!