Windows products are known for containing bloated code, Windows CE is no exception. The Dragonball is designed for extremely low power consumption, which entails a slower clock speed. All PalmOS devices run at 16MHz, except the PalmVx and PalmIIIc, which run at 20MHz. A completely unused Dragonball would lack the speed neccesary to decode a CD-quality MP3 and using the PWM while doing this would be even more impossible. Again, the slower clock speed exists to save battery life.
Video is quite a different story.
While this may have its uses, for most applications though, the current facilities are not sufficient. Aside from the increased processing speed need, video also takes up a lot of space, regrdless of the format it is stored in. Most of all, however, the reasons Palm devices lack such capabilities is mostly political. Marketing data shows that the CE-based devices are failing terribly. Like any intelligent company should, Palm tried to design their device to succeed in the competitive PDA industry, and that they did.