This is not that useful. It's very easy to identify malaria on a peripheral smear with minimal training (and a much cheaper microscope/lens instead of a smartphone).
This is a big ad for Microsoft Windows Mobile 7, which may gain traction in developed countries but the phone is too expensive for the developing world. This is not the $5 solution that is needed.
This is not the solution for $5 of a poor mother in middle Africa. This is a solution for a <put a industrial country here>'s senator who wants to spent some millions for human activities. Believe me there are some. And these guys are maybe 50 or something. They use Microsoft Phones or Black Berries. They don't download apps in the Android App Store.
Thinking realistically that might really be a lot better solution Over the time I saw some projects that where really smart and really cheap for the people who need it, like water bottles, which could be used for building houses, or which could clean the water by itself. I never was in the poor regions of Africa, but I guess they still build their houses with different parts from plants and mud. I hope so much that this phone will work.
And just as side note, I'm really jealous of these hackers. Man, I'd also like to spend my time doing something meaningful like this.
There's an even easier malaria rapid antigen test that requires no microscopy: http://www.cdc.gov/malaria/diagnosis_treatment/rdt.html
In many nations with endemic malaria, however, treatment is many times just empiric -- diagnostics are a luxury.