In this clip, Ballmer makes a common mistake. Namely, he uses the smartphone as the point of comparison to the iPad. This is, of course, due to the iPad's physical resemblance to the iPod touch/iPhone and the fact that it runs the iPhone OS. But it's not a mobile device as Steve -- and many others -- define them. Specifically, smart phones and PDAs.
The correct point of comparison for the iPad is the laptop. It's not a full laptop replacement, of course. I wouldn't want to edit video on one, for instance. But that is Apple's aim: to commandeer the laps of millions of typical laptop users. Nearly everything that an average user does with a laptop, be it browsing the Web, sending and receiving email, looking at and sharing photos, watching videos and so on are the iPad's strengths.
When Ballmer says, "I think there is a fundamental difference between small enough to be in a pocket and not small enough, really, to be in a pocket," he's right, but he's also dismissing the iPad as a mobile device, and that's missing the point. Laptops aren't small enough to be in a pocket, yet they're a crucial tool for millions of users. To compare it to a iPod, Android device or Windows phone would be silly.
Don't let the iPad's looks fool you. It's not what we've come to think of as a mobile device.
You can watch the full clip after the break.