I don't think the use of an embedded processor is a problem... There are many solutions to avoid the lack of performances : better software optimisation, assymetric multiprocessing support (check the 4 * ARM233 Simtec PCI card), good sales that mean that Castle could ask for a production line of ARM with "speed oriented transistors", etc.
Main problem is not to loose the focus : flexibility and optimisation. We see today that an R7500 has good performances, but we could make a better draw for it by using the FPU. In the PC world this idea cannot be applied but here people keep their computer a lot of years, so optimisation is really the way to get more performances.
a 20% speed up on Wimp is really better than to switch from a P4 2.0 GHz to a 2,4 GHz one... Other example : my PC card was really faster than my current (and as much pricey) VPC on Mac. thanks to the excellent PCPro driver. ARM computers has a strenght : best performances for the power. More power would be good, but never forget our performance/power advantage. If you do so, ARM computers will become a PC or a Mac and will - IMHO - die.