I think you have it backwards...
Well shit, heres a picture you're right.
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This makes more sense now IMO. Playing on handheld mode you will put the cord in the port will give you mic/chat/game audio and all - however the phone will be used to invite friends to parties and games because the OS is rushed and half-baked and these interfaces aren't in it yet.
However, it still sucks for console players. Because if you have the switch in the dock - how will you get audio? Can you use the headphone jack while its docked and will it give you audio? If so, you're gonna need a long ass cord.