The UI update is long overdue
I haven't fully read up on Windows Phone 7, but does it not support all the old Windows Mobile apps? If not then Microsoft have probably been a bit stupid there.
That said, the pokey old Windows Mobile interface was badly outdated and needed to be reworked. No-one wants styluses any more so it needed to be more finger friendly and while the multi-tasking is nice, it eats memory and slows performance to a crawl. Most handset manufacturers exacerbate the situation with weak CPUs incapable of offering decent performance, resulting in sluggish, unresponsive handsets.
All the phone manufacturers have tried to fix this by hacking custom front ends onto the phones, but that's just messy and doesn't hide the underlying failings of Windows Mobile, nor does it remove the occasional need to pick your way through those old menu screens. The strict restrictions Microsoft are deploying for WinPho7 should do away with all these hacks and sluggish interfaces. Hopefully they'll mandate a minimum CPU to maintain performance too.
Besides, who is to say WinPho7 can't be a decent pocket computer? I've got SSH, RDP and an office suite on my iPhone (there's an app for that...), I'm sure similar apps will be released for Windows Phone 7, it might not even be a big job for developers to port from Windows Mobile.
When it comes to small portable devices I think restrictions like this are key in ensuring a workable UI and decent level of performance. Windows Mobile tried to do everything a desktop could and failed, the iPhone OS by comparison is cut down to basics and is better for it.