WITCH!! BURN HIM AND HIS HORRIBLE "HAND-HELD".
Downloadable handheld games...I tend to think we're a ways off still, but I do believe VC will be on DS2, and I do believe an all-download handheld could happen in a couple of generations. Heck, you could argue that video Ipods are already offering that, and I've argued that this is the way for Nokia to take the next N-Gage. Not having to carry around little games or walk into a gaming store to buy stuff is a nice feature for the casuals, and it allows lower pricing.
I'm a fan of physical media myself, but recently I've been thinking about non-physical media and I'm starting to like it - especially in the case of movies, which I've always felt took up too much room, and didn't offer any major advantages in physical form. A physical CD comes with an insert, often a work of art itself, and often including handy things like lyrics. Physical games come with instruction manuals (admittedly not that important anymore). A physical movie or set of TV shows comes with a box and a bunch of advertising.
I do like the idea of owning a permanent physical object, but the space and cost trade-offs are starting to make me realize why kids these days like downloading.