UPDATE: I originally asserted that the camera was placed above the right thumb stick, but this was because my screen capture happened to be taken at just the wrong time. Right between the screen below and the bulleted list of spec on the next slide. What you saw in the original image was one of the bullets from the next slide. You'll be happy to know that the location of the camera is still less than aesthetically pleasing. Sorry for the error!
I actually took the time to unwarp the image of the controller, and it's beyond unusable. There's a reason there's no audio, and I assume it's because this is a college kid in a marketing class of some sort. Check it out:
The first thing I notice is that if the screen is six inches, then the controller is over a foot wide. That would also make the analog sticks and d-pad about 1 3/4 inches apiece, and the face buttons about 1/2 inch. Don't worry, it gets worse. Did you notice where the L and R buttons are? That's right, they expect you to have footlong hotdogs for fingers.
I'm going to wring your neck, then play Cafe!
Aside from these glaring defects, there are a couple smaller issues. Being that the rumored camera appears to be sitting awkwardly on top, the handles are approximately 9 inches long, and is that rather large array of dots to the right of the screen a speaker?
I think it's safe to call this one debunked. Nintendo are far enough beyond their VirtualBoy days not to release something so aesthetically displeasing, and they've never made something this unusable...
If anything we've heard is real or not, we'll know once and for all very soon. Nintendo's E3 press conference is but a mere 16 days away.