Of all the things to do with the C64, this was probably one of the worst. There's a similar product already on the market with some Atari 8-bit games in a joystick unit. Well, I suppose if the games selection is good, they could be onto something.
A good idea, since the only people who would invest in a C64 are the nostalgia nuts. Unless people are willing to make new titles, developing anything other than a closed console doesn't make any marketing sense.
A C64 handheld with an LCD screen, mini-keyboard and old serial interface would have been excellent.
Who would buy it? Far, far more powerful machines are possible for roughly the same amount of money, and are much easier to program. If you were to make a C64 handheld, the LCD would probably be more expensive than the entire computer, serial port, and embedded flash ROM combined. Besides, who wants to program in 8-bit assembler when they can use modern tools with 32-bit RISC chips, which are fully capable of emulation.
At the time, the C64 was an amazing machine, but now it is all too clear how difficult it was to use. I still despise having to use that damned sys command.