Microsoft and Compaq are well aware of the problem. The GX.DLL is distributed by MS and is the same on every platform. The OEM's display driver is what actually exposes the hardware capabilities and screen address. Microsoft has no control over this.
The iPAQ 38xx devices use a new 16-bpp display. The connector on this display made it such that the display had to be oriented 180 degrees from the display on the 36xx devices. In an attempt to be backwards compatible with some poorly written apps, Compaq decided to emulate the orientation of the 36xx devices by using a GXDMA buffer under the hood. To add insult to injury, their routine for rotating the buffer 180 degrees each time the app calls GXEndDraw takes almost 20 ms. I don't know what they are doing in that loop, but I've written some simple C code to do this and it measures around 5 ms.
All of this just goes to show you how much Compaq cares about the game development community. Perhaps things will improve with the HP merger.