There's also the issue of competition, too.
Say Sony does what they say they are going to do makes the next PSP or whatever a digital distribution only device. That would limit their potential customer base to those who buy the PSPs and take them online, and even the 360 has like 10 or so million units out there that don't connect to the internet. Second, it would completely cede the Wal-marts and Gamestops to the competition. Imagine walking into a Walmart and seeing that they sell PSP2s but no games for them, or worse, empty game boxes with little slips of paper that tell you to connect to the internet, sign up for PSN, and use the code to receive a game as fast as your internet connection will provide (assuming it is up and running at the moment.)
Or look over at the DS2 case and see a shelf stocked full of games that you can plug in and play within seconds. It would look, to the average consumer, that the PSP2 is some sort of failed machine that nobody makes games for. Now imagine this with the big consoles. Imagine Sony and MS going completely DigitDistro and only physically shipping their consoles. That would make the entire game store look like some sort of Nintendo paradise. The physical market is not one to throw away so easily, and unless they start pulling down Wii Fit's revenue numbers (Highest ever for a single videogame, 17 million+ $89 = Holy Frijoles, imagine the profit), I'd say Digital distribution remains a place for classic titles and new ideas, but not a means of building an entire industry's retail around.