I've tried to follow this thread, but it meanders a bit.

Is the basic idea under discussion having a wallet-only client running in a small hardware device that can interact with POS terminals?

Most of the smartcards that I've seen are just (tiny) general purpose CPUs embedded in a card, usually with a small ROM containing a secret key.  This is not a useful model for bitcoin.  For bitcoin, you need the secrets in RAM (flash, etc) because you need to be able to add new secrets.  You also need to make sure that you don't ever let the device communicate with a hostile device using the same physical pins that can be used to reprogram or dump it.

Think more along the lines of a small custom device with a screen, a couple of buttons, and a serial port (or serial over USB, or serial over bluetooth, or serial over NFC, etc).  The programming interface, if it has one, must be internal, or it must load software from a memory card (like SD).