Allen Nejeh had me laughing in his car. The founder of Telemetria Telephony was showing off his mobile Internet device, a computer with a seven-inch screen that can plug into a car’s dashboard.

As we were driving down a San Jose street, he fired up YouTube. The video of an interview with Nintendo’s president started playing on the screen. If a cop saw us watching a video on the dashboard, he would surely have pulled us over. Yes, officer, I was doing 40 in a 30 mph zone while watching an Obama Girl video.

But Nejeh is serious, and he notes that the system may or may not ship with controls that stop you from doing dangerously distracting things while driving. Among the more useful things the system’s built-in navigation can do is predict which route you should take based on real traffic patterns from third-party traffic data vendor Inrix. The notion of being connected to the Internet while driving your car isn’t ridiculous anymore. Telemetria, a new entrant in the crowded field of mobile Internet devices, has allied itself with Intel as part of an effort to create genuine car computer.

By zeroing in on the car MID market, the San Jose, Calif.-based Telemetria hopes to come up with something unique compared to the dozens of models of Netbooks and other handheld computers being introduced this year. The company’s handheld navigation computer will be a “platform for vehicular applications.” The whole point is to welcome third-party software development for next-generation location services.

The device will be a full-fledged computer with the ability to control entertainment systems in the car such as backseat DVD players, a Lojack-like car alarm system, back-up cameras which give the driver a view of what is behind them, a CD/radio player, and car diagnostics, said Nejeh. The user interface software is dubbed the Smart DashTop.

The device is removable and can snap into a car stereo system. The car dock has four universal serial bus ports while the display itself has two ports; that makes it easy to do things such use a webcam in the car or plug in an iPod. The car diagnostic system uses the same error codes that computers at car repair shops use, allowing the car to report problems, such as a tire that needs air, to the driver. The computer works with any car older than 1996.

It’s hard to imagine how this kind of system will work, given the lack of high-speed wireless bandwidth to cars today. But the company isn’t going to launch its product until next year, at the earliest, and so Nejeh argues that the company will be able to adjust as needed to whatever communication network is ready. We were able to watch the YouTube video using the limited bandwidth of a 3G cell phone data network. But watching true, high-quality video will require seomthing like 4G networks, which will be based on yet-to-be-introduced WiMax or Long-Term Evolution voice and data networks.

The gadget will run the Windows Vista or Linux operating systems and use Intel chips for its processing engines. (It may use Intel’s next-generation Atom platform with a 1.8-gigahertz processor that dissipates 2.3 watts). While it uses the Intel chips, it is not, per se, an “ultramobile PC” as defined by Intel.

And it will have wireless connectivity using the WiMax chip set from Beceem. It will have the ability to integrate 3G cell phone services as well. As such, the initial product roll-out will depend on how fast WiMax networks get deployed. But as a backup, the computer will use cell phone networks as well. The company is targeting six hours of battery life but you can also plug it into the car for power.

The prototypes are ready now and work fine. Using Femtocell technology, which connects a wireless device to the cell phone network, the device could be used to make phone calls. Nejeh showed me it could work by connecting to Wi-Fi and connecting his laptop to the web. The target cost is under $1,000.

There are eight employees who have been working on it since about last year. It has about $2 million in angel funding and seed money from SunMan Engineering so far.

The company spun off from contract engineering firm SunMan Engineering in San Jose. Nejeh is CEO of SunMan, a 19-year-old company which designs wireless gadgets for other companies under contract. He is CEO of Telemetria on an interim basis. Telemetria is looking for a couple of million dollars in funding to complete its product, and it is also looking for a permanent chief executive.