I've had an idea that was actually inspired by someone's build on the Ben Heck Forums a few years ago. I think that I have a concept that might provide a solution to build a true handheld Xbox 360.
The first big challenge to this idea is that the Xbox 360 has huge internal components. This limits the amount of miniaturizing that can be done. But, the question that you have to ask yourself, is "what makes up the Xbox 360 experience?". The answer is Audio, Video, and Controller. These are the things that you interact with, and these are the things that need to be present in the handheld to replicate the Xbox 360 experience. So here is my idea:
What if you could take the Video, Audio, and Controller from the Xbox 360 and convert them into signals? Now you've got data to send and you just need a receiver to translate it. Basically you create a rig that you plug into the Xbox 360's Audio/Video ports (a transmitter). Then you create a special device that can take the controller's input/output and also transmit it. So now you've got your Xbox 360 experience broken down into signals. You build a receiver that connects to a computer. The signals from the Xbox 360 are picked up by the receiver and then a custom program decodes them and broadcasts them over the web/lan as a server.
Now you need to build the handheld device. All it needs to be able to do is receive the signal from the server, display it on the screen, and then send your controller input back. While this may seem to be a challenging system to create, it is possible (as demonstrated by the various Cloud Gaming technologies). All you need to do is find/build the mini hardware with firmware that is able to Log into your remote server and display the data in an interactive fashion. You could build the handheld with wifi or 4G (or both). So you've essentially created a device that can put your Xbox 360 in your pocket.
Obviously this idea presents a lot of challenges and represents a lot of hard work. However, we are talking about an idea at this point. The biggest challenge that I find is that you can't swap game disks remotely. Obviously it would work better if you were playing games off of the Hard Drive.
What do you guys think about it as a concept?