Yes there have been some really lovely 35mm compact cameras, like the CLE you posted Barry, I never really followed that one at the time, should have, but I was into SLR's at the time, so I had to do a quick knowledge refresher/upgrade/history lesson, that one was a special camera in Leica M mount, it had the three interchangable lenses, 28mm, 40mm, and 90mm and looks like it had quite an advanced exposure system for it's time, it probably should have sold like hot cakes, but was most likely not overly cheap.
The thing with FF though, (and too an extent APS-C as well), there is a substantial limit too the lens zoom range/size that you can fix to a FF compact and still have it remain compact. By comparison, that is, too those microsensor compacts that have largely self-destructed through endless competitive one-upmanship, such as 14MP (supposedly) on such a tiny sensor, ridiculous.
I bet too like you say, Canon and NIkon are not asleep at the wheel when it comes to the m4/3rd sensor, Oly states a 2X conversion factor for FF equiv, so that puts Nikon's rumoured one at the same size, a 4/3rd type sensor as well. It will get serious in that area when the heavyweight camera makers get involved, that's for sure, Henry might even get his wish at some point.
Greg

Yes, that's the most (scientifically ) expected outcome of canikon joining the fray...
And it's good to us, the 'users'. Not so to the canikon. Them being 'not so electronic' in the nature, it's going to exhaust them 'outta da markit', that's if they don't come up with something truly revolutionary, which they might...

I think I got the x2 crop wrong for Nikon I heard it was smaller than the 4/3 sensor..not sure if that's true or not I guess we shall see shortly.

Whilst I like the idea of APS-C for these models I'm not sure they're going the right direction. Sure some 35mm compacts were not small..some were pretty compact and a lot had slow lenses. Still the APS-C format does help out there to some degree. I would like to see APS-C compacts on the market myself without a lens change. Sounds mad? Well honestly I don't think so!
My money is on Canon coming out with something pretty impressive and as it has the big C name on it, sure to sell far better than any other maker on name alone.

Good call! Sort of like the Minolta Freedom Tele? It featured a two-stepping lens at 38mm f/2.8 for the wide end and 80mm f/5.6 at the telephoto end. It was a fairly compact little "zoom" and the design was picked up by Leica to make the AF-C1, so it can't have been that bad. A modern interpretation could be smaller and offer focal lengths better suited for the smaller sensor. Such a small and versatile lens could draw a lot of attention to the E mount!

If you want small this is just the ticket

http://cgi.ebay.co.uk/HANIMEX-MICRO-110 ... 0131163334

I actually have one of these boxed as new! (don't PM me and beg to buy it lol)
Never even shot a single frame on it..but it's really ultra tiny. Better dig this out it's in the loft somewhere. 110 never did it for me it was not a patch on 35mm.

But if we look at sensor sizes:
http://en.wikipedia.org/wiki/Image_sensor_format

Something like a 1" sensor would be just the ticket for a really compact camera which would deliver much better IQ than the usual tiny stuff we're so used to. That's my thinking anyway and I bet Nikon do something similar to that using that size sensor.

I couldn't stand the 100 format. However I still have the Minolta 16 tucked away. I snuck it into prison once and got a few passable shots with it.

Dusty

Seeing that the heroically compact 16mm f/2.8 hasn't got room for OSS like its sibling lens, the 18-55, I suppose we can't expect image stabilization for any other pancake-style lenses.

I think it is probably worthwhile to look at which lenses Canon puts IS in. Mostly zooms except for long telephotos. Not in most prime lenses. Also, not in the 16-35mm f2.8 and 24-70mm f2.8. Since the NEX does not have IBIS it will probably be the same.