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The average user's interests are: #1 form factor, and #2 ease of use. They might even tell you that "ease of use" is #1, but I bet their buying decisions don't reflect that. People will buy pink Razrs with mediocre UIs by the millions. They spend more time carrying their phones (in pockets and purses, not in briefcases) than they do using them - form factor is #1 for valid reasons.
The QWERTY keyboard still hasn't made the form factor cut. Apple has arguably done the best job, but as you say, with QWERTY usability sacrifices. The Treos and Blackberries, while still getting smaller, are still bricks compared to phones like the Razr which came out several *years* ago.
My prediction: T9 touchtyping will remain the "average user" king until something more efficient comes along that doesn't add bulk to the device. Even though consumers might prefer QWERTY, T9 is good enough and still allows them to pick up the latest, sexiest phones.
Best,
Matt