Here's how I would have faked it. Maybe it's what the author did too:
Use a video camera to film my mac starting up and perform a few actions.
Export the movie to my Palm using gMovie or something similar.
Tape a hard drive to the back of my Palm.
Play the movie and move the stylus over the meaningful areas after bootup.
Voila.
It's not too hard to see the pixelation from the compressed-for-Palm movie, and you can isolate it from possible MPEG4 compression pixelation because the blocks are at right angles to the Palm, not the MPEG4 movie.
As if that's not enough, there's the marketing aspect: Who would buy a PDA that takes as long to boot up as a real computer?
Great video though!
-Rob