The major problem I have with the menu button, and all the Android buttons, is they are disruptive to the flow of using the software. Until the touch buttons are as sensitive as the touchscreen itself it's going to be a bit jarring to switch back and forth. This raises the problem of the touch buttons getting activated accidentally if they are too sensitive. I prefer having all the UI elements accessible from the touchscreen itself. It's probably a bit of a compatibility nightmare to attempt to solve now. Using touchscreen UI elements in tablets and a physical or touch button in SmartPhones is definitely not the most consistent way to approach the problem. Many people use their phones in a landscape orientation. IIRC at least one Android phone maker implemented the menu/back/home/search buttons in a second small LCD. This would probably be the best approach. The buttons themselves could change orientation as needed.
The Nexus One solves this problem -- the 4 button are just dedicated chunks of the screen, and they're precisely as responsive as it sounds like you'd like.
I strongly prefer physical, mechanical buttons; they work better with muscle memory. Some devices implement some of the buttons as on-screen soft-buttons. It's probably possible to do with all of them. At least one upcoming tablet has no off-screen buttons. Fortunately, Android is an open platform with lots of flexibility so we can each get devices we like.
If only they'd bring back trackballs and 5-row keyboards... then I'd be happy.
