I think that this controller will replace the classic controller when used with the console, working alongside the Wii Remote Plus as the main controller for the system, and actually become the system when used on the go. It is no secret that Japan has largely moved towards portable gaming and I think this console will be Nintendo's first attempt at a hybrid of sorts. The IR lights would even allow you to use a Wii remote's pointer on the go, even though that probably isn't ideal on a 6" screen. The system's codename, Project Cafe', also leads me to believe that social gaming will be a large aspect of the console, taking your console games to public places and playing them with others will now be much more feasible. The camera could be used for augmented reality gaming that Nintendo has taken a liking to on the 3DS, or even for online communication (yeah right). The touchscreen built in to the controller could have a number of benefits for gaming at home as well, allowing players to pick their plays in Madden secretively, act as a HUD that clears up valuable television space, act as a real-time inventory that doesn't interrupt gameplay, as well as act as a second game screen if players get separated from each other in a co-operative mutliplayer game.
These are simply ideas based upon rumored features of the controller. It is still likely that none of this is true, Nintendo has always been a very secretive company. But these features certainly would make for an interesting console, especially when paired with capable hardware.
Update: Click over to see excellent renderings of the concept I drew out in MS Paint, courtesy of Redditor xsp.