Windows CE is a better option in terms of screen - my Casio E105 has a 320x240 screen which could easily match ST low resolution (320x200) with room for a toolbar. The 131MHz CPU could certainly manage a passable 68000 emulation...
I'd rather have it done for PalmOS though - I have a Palm IIIe that's not doing a lot (I prefer my Casio...WinCE sucks old socks, but the screen and sound is lovely) and a handheld ST would be cool. Yeah...you can interlace the screen and use greys for the dot patterns of a high res screen, that would work, or scroll - I used VNC on my Palm IIIe and could connect to my PC and view my desktop, scrolling around it wasn't too painful, just the speed of the serial cable made the updates sluggish...