Actually, the mock-ups I drew by hand were done to actual size, so I know exactly how big a 6" screen is. I even printed out a 16:9 screen that was 6" to compare it to my drawing.
Look at this:
This is the Aino V8000HDW media player, compared with a PSP. It has a 6" 16:9 screen...
Here it is in someones hands
and here is a mockup made to the same scale
It comes down to size, cost, and ergonomics. And no R&D team worth their weight would draw up that mock-up. Too much wasted space. It's slick, but more expensive for no reason.
The aesthetics of it look nice and that alone will sell it to far more people than a giant widescreen Gameboy Brick.
Plastic is cheap, but if your so worried about extra plastic, then they definitely wouldn't put the controls on just the side because of the angle the thumbs need to reach the lower controls. To set the controls up properly, there would be plenty of "wasted space".
As far a what an R&D team would draw up... I guess we'll just have to wait and see.
edit: And have you seen a DS, DSL, DSi DSiXL or 3DS? talk about lots of xtra unused plastic.