Most of ambients stuff is a one trick pony and uses (what I believe) is an FM subcarrier data network.. which in some ways is a useful thing if your in their footprint... Some of their devices are rather attractive... (the Orb and the Weather Lamp) come to mind.. but I wouldnt call them competition.. In some ways they actually are a good adjunct to a chumby... For some things they have more immediate data, and others you dont want to have to wait for a widget to come up on the chumby (Yes I am fond of the weather lamp, its a frosted glass box of sorts that changes color based on the data)...
But if you've noticed everything Ambient supplies *usually* is its own separate appliance... Theres a lot of similarities between the two, but Ambient is more towards "Ubiquitous Computing" as they call it... its like having only one flavor of jelly beans... Chumby gives yah the assortment.. but requires a little more interactivitiy with the user.. While an Ambient appliance just sits there and does its one job..
Yeah, they do use a radio signal, so I should have said competition from "information appliances," not "Internet" ones specifically. Competition does exist between general and special purpose devices, though, even if it doesn't seem as direct as competition between two general purpose devices (like Chumby and Nabaztag or whatever that rabbit-thing is). As you said, a general purpose device inherently requires some sort of indication, like clicks, taps, button presses, etc., to tell the thing "Now become a radio; now become a clock; now become a weather station." Then whatever-it-is requires additional clicks and taps to operate. A special purpose device avoids the need for the first set of indications, and hence is faster and easier to operate. So if people mostly want a Chumby as a radio, they'll find it more convenient to buy a radio (ignoring the price difference for now, as I'm sure the cost of Internet radios will come down). If they mostly want weather, they'll find it more convenient to buy an Ambient weather device. And so on.
The question is whether, for most consumers, the advantages of one smallish device that can do many things outweighs the burden of constantly clicking and tapping to tell the device which thing they want right now. So far for me, it does: I bought a Chumby, after all. :-)