Here's how I think they did it (the fake):
First, a very high quality mock-up was made. It may have been a sooped up sharp or other existing pda. The fcc lables and apple logo could have been copied off of an iPod or something.
The screen was just blue paper. Using real basic or project builder, they created a fake 300x100 operating system which was 100% user-interface (no real computing needed). They ran the UI on a power book, and captured the video onto something with adobe after effects or premier or final cut pro.
By using a blue-screen-like effect, they replaced the mock-up's screen with portions of the captured video.
For the text, they simply added in text in the editing program. You can tell this, because, as is allready pointed out, the text remains *perfectly* still while the iwalk slightly moves. See, the blue screen on the iwalke moved as well, so the super-imposed operating system shifted too, but not the text which was supposedly written.
The shadows are of course perfect because a real, physical object was used.
I for one actually hope apple waits a few years before they release any sort of pda. And I also think iWalk was a beta-name for the iPod (like a walkman, sort of).