1. It's a simple chat mechanism, if you read up on it or even read what I posted, you would notice that the range is not even close to internet, guaranteed at 30 feet, though may work more. The wireless is mainly so you don't have to use a link cable, not so you can play online. As for the chat thing, the only purpose I've thought of thus far is passing notes in class.

2. Microsoft doesn't make palmtops, and if they made it a palmtop it'd have to be like completely different, probably bigger screen and whatnot, and would cost a lot more unless they took away a lot of the gaming capabilities.