Are the keypads becoming really digital as opposed to physical (made of atoms)? May be yes! …looking at devices like the Nintendo DS Lite, FOMA D800iDS, and event the future Apple phone.
I can see the advantages of hardware keypad in terms of tactile interaction (at response and input level), mastering phones’ functions while walking etc…
At the same time a “digital” keypad is a blank canvas for any GUI designer.