frank for me there is two parts too your post the first is:
"having a small page template and duplicating all content to fit on there.... Should I create from scrath the mobile section with it's own unique content"
and
"However would the search engines penalize me for content duplication? Even if it was laid out differently?"
The content your working with is very important for the first question/s. I havent herd of the second question being an issue before. All your doing is offering your site on a different device serach engines will not penalize you for this. Everyone is doing this main stream included. Also your mobile site will be
http://pda.myurlhere.com or
http://m.myurlher.com so is not like having multiple movies on
www.myurlhere.com.