On the GameFAQs boards earlier, a Capcom VIP was "unofficially" relating some things he's been hearing from their R&D departments.
Basically, Capcom apparently thinks the NDS will pwn the PSP.
They think the PSP is some extremely-powerful hardware, but with the size of the PSP and NDS's screens, the PSP could have a LOT more polys on the screen that the NDS, and it would be tough to tell the difference. It's just too hard to see the details on the small screen.
And that's the way Sony's going. They're pushing for high-polygon 3D games, and PS1 ports. While Nintendo doesn't want developers to overreach with the NDS. So there probably won't be many direct PSP/NDS comparisons, but if there were, the NDS would probably do a pretty good job of holding it's own.
Also, there is currently no financial model that allows hardware makers to sell the system at a loss. They think that the PSP will be horribly overpriced, while the NDS will be about par for a Nintendo handheld.
Supposedly the NDS is really well designed. Clean, simple, and a dream to develop for. Previous GameBoy experience makes it even better. The PSP... ummm... isn't.
And here's one I haven't heard before. The disk media of the PSP is a horrible mistake. Sure, Sony can make minidisc players that almost eliminate disk skipping, but they only REDUCE the chance of skipping. And when you're playing an mp3, and it skips, the song might stutter. If you're playing a game, it will crash. Combined with Sony's infamous quality reputation with the PS1 and PS2, the disk media is a flat-out mistake.
So umm yeah. That's pretty much what they think is wrong with the PSP. The guy didn't even bring up anything about the possible new gaming applications of the NDS.
He was saying that the "PlayStation brand" will obviously sell a fair number of units, especially if Sony tries to market the system to older people who might be able to afford it, but their high-price and possible alienation of the younger markets will make it impossible for them to go beyond being a "niche" market.
But he says that Sony's planning on "pulling a Microsoft", and sticking with the handheld industry, even if it's a "failure", just so they can keep creeping in, with more and more marketshare, until they've been there so long that people are used to seeing them.
Apparently Capcom's planning to fully expoit the PSP's market, and has multiple PSP games in the works (not all of which will be launch titles, of course), but their REAL favored system is already clearly gonna be the NDS, barring any unforseen hurdles, like year-long hardware launch delays.