The problem with the original N-Gage was that not only was it not a great game "deck", Nokia managed to fumble their core competency, and didn't make it a very good phone. The QD fixed many of the phone issues, and it ended up being a much better phone. The problem is that Nokia reuses parts from their phone line (for cost-cutting reasons), so the QD will always be hampered by that limitation to a degree. You'll notice that following the N-Gage launch, several other Nokia phones with similar designs were released. That's not a coincidence.
The problem is that the QD had a big hurdle to surmount because of the flawed first launch. While that still might cause problems with N-Gage 2 (or whatever they're going to call it), Nokia is constantly learning, and I think that the N-Gage failure caused the company to take a good hard look at what worked, what didn't, and to assess what needs to be done.
As for N-Gage as a brand name, I have to disagree. The name is fine, there really isn't that much negativity associated with the name, so a launch with a new machine would basically allow Nokia to pretend the past never happened.
By the way, not that anyone cares about my opinion, but I think Nintendo and Sony need to watch out. I have a feeling that people are going to start reducing the number of gadgets they're carrying around as things get bigger, and technology gets faster, and being able to play simple (or "casual", as they're called in the industry) games on a cell phone is becoming a HUGE market. I read recently that by 2007, there will be over 400 Million game-capable cell phones in the market (compared to a tenth of that for portable consoles). Porting games to different cell phone standards is actually fairly trivial, and I think if Nintendo and Sony don't take notice, they may find that the portable game market might shrink dramatically as people realize that they can get as much gaming as they need with their phone. We're probably a few years off yet, but you can't wait too long.