Things like that certainly used to exist, names like Psion and HP Jornada spring to mind. However, as you've discovered, the world moved on and such things have largely become smartphones and netbooks.
I would suggest you have a look around Maplin or similar boys-toys shops to see if they have something that would suit your purpose. Personally I think you'll end up with a smartphone, they're more expensive than I suspect you want to pay, but they're subsidised so you might be able to get one at a budget price.
If you wait for the next wave of Windows Phone 7 devices you'll get Microsoft Word and an up-to-date phone. The legacy Windows Phones have Word and they will be supported for some time, they may well also be available at knock down prices, so they also might be considering.
You're not going to be taking notes in beautifully formatted text, I'd imagine all you want is something you can type at and scribble the occasional diagram at. There are going to be Andriod and Blackberry-type phones with keyboards and touch screens that could also do that for you.
Another place to look would be eBay. I've linked Maplin's UBISurfer below as it's the size you suggest and you could go and look at whether something like that would suit your purpose (although probably not that device).