With the latest mylo, Sony set out to address all the major beefs users had with the company’s first stab at a mobile Internet device for hipsters. The new model sports a bigger high-res touchscreen. There are more instant messaging clients, including AIM, Yahoo, and Google Talk. And there’s full Flash support for watching YouTube videos and playing games, Ajax support for accessing sites like Facebook, and a built-in camera. This $299 Wi-Fi device is much improved, so why don’t all of these enhancements add up to a compelling experience?

Overall, the device is a bit too chunky for our tastes (think PSP with slide-out keyboard) but it’s reasonably compact. The screen is certainly miles better than the original. Sony bumped up the size from 2.4 to 3.5 inches while increasing the resolution from 320 x 240 pixels to 800 x 480 pixels. We had no problem using the touchscreen to navigate the main menus and to click on Web links but some may want to use the tethered stylus for more precise control. A built-in stylus holster would have been better. Scrolling down pages with the swipe of a finger was fairly simple. Unfortunately, the mylo was often slow to respond to gestures. We recommend using the joystick nub for scrolling.

We like that the keyboard offered a bit of tactile feedback and that it was backlit. But we have no idea why this device has separate Fn, Num, and Sym keys. Why not design the keyboard so that the Fn key handles all of the secondary characters? This got annoying fast, especially when entering passwords. Yet another design head-scratcher is that the touch-sensitive buttons that surround the display (like Options, Disp, Back, Info, mylo, and Home) aren’t backlit.

Pressing the mylo button takes you to a desktop-like screen decorated with widgets, including a Google search bar, Facebook widget that keeps track of your page, a YouTube widget that provides quick access to the latest videos. Especially cool is the Contacts widget, which is designed to tell you which of your instant messaging buddies are online at a glance (in a grid). More widgets should be available for download soon, and Sony is even encouraging mylo owners to register to become developers and share their creations online.

The mylo served up Web pages at a decent clip over Wi-Fi: about 14 to 16 seconds on average to bring up The New York Times homepage, and about 8 seconds to load various articles. We also found it easy to respond to Facebook messages online, although we had to use the on-screen zoom controls to see the text. And YouTube videos looked smoother on this device than they did on the Nokia N810 we just reviewed. Yet another perk is the built-in Skype client; a test call came through loud and clear with only a bit of an echo. The other caller sounded fine, too, but only when we had the included headset plugged in. The speaker was so weak we could barely hear him.

Our biggest beef with the mylo is that it’s not a good multitasker. We encountered a running-low-on-memory message when Yahoo Instant Messenger and Skype were open while trying to load a Web page. That’s not a lot of apps, and it happened on other occasions as well. This one weakness could be a dealbreaker for the 18-to-22 college crowd Sony is targeting.

We also don’t like that this device is Wi-Fi only. Sure, you can look at photos and listen to tunes when you’re out of hotspot range (the mylo comes with 1GB of built-in memory and a Memory Stick Duo slot for up to 8GB of more storage), but having Bluetooth on board would at least open up the possibility to use a cell phone as a modem—not to mention the fact you would be able to wear a stereo Bluetooth headset for wireless music listening and making Skype calls.

The second-gen mylo offers a lot of functionality for $299, but prospective owners might be better off with a Helio Ocean or iPod Touch until Sony can work out the kinks.