Iwata said he didn't see the PSP cutting into their business, that's not to say marketshare wouldn't be taken from them if they were to be classed together. It means that the impact to them specifically, in terms of dollars, wouldn't be great. But Nintendo has been cocky to dismiss rivals before, this could be no different.
I think PSP will have success, but it won't dethrone GBA. The GBA would have had a 3 year head start or whatever by then.

The difference between Saturn, Dreamcast, and PSOne is the timing. Sega was so intent on launching first that they launched their platforms mid-cycle. PSOne was released at a good time to counter Nintendo's N64 hype.
An LCD for a console is unique. If it could be detached so the player can sit on the couch, then I think you're on to something. Getting up close to the console would be a bit weird. This might negate GBA connectivity, however.
DVD playback goes against the gaming-only theme, but at this point the cost of DVD playback would be nil, except for the licensing, which is also pretty small now. I know most (> 50%) households probably have DVD players, but I don't think most have more than one yet. There is still value in including DVD playback in that the kids can now have their own DVD player in their rooms.
If they REALLY want to go all the way with their gaming-only theme, they should build in GBA and GameCube support and promote the 3 systems in one.
If the N5 architecture is similar enough to GameCube's, it would be cool if they were to release games that detected what hardware you're running, and then optimize itself for that platform. Sort of like what PC games do when detecting the CPU and video card. These games would reach 2 systems at once. Even though it might cannibalize N5 sales, the money is in the software and this would increase the potential buyers. And it would take up less shelf space in retail than current multi-platform games. It's perfect for 2nd tier games like Mario Party and others that do well, but aren't system-sellers.
The elimination of controller ports adds new possibilities. They could include enough receivers to support any number of signals. Built-in 8-player support perhaps? If there's more than one video out, that would simplify LAN gaming... if not make it somewhat obsolete.
Armchair quarterbacks unite.