When I show people the square dongle on my phone, the first thing most people ask is... "OK, that's cool, but how can it accept cash"?
If their communication is not really simple & clear about how they can be a "total" solution for a small business (which yes, must also take cash + CC's), then they will not get to mass market. Having more hardware (which is far harder to scale than software) will not be the best path.
That said, I'm still impressed with Square, as it's very hard to compete in a non-level playing field with huge entrenched players (Visa/MC/AMEX + big POS players), and the ecosystem needs successful upstarts to freshen the ecosystem for consumers.