I think the key mistake everyone is making is that they're thinking of these portables as though they were consoles. In all likelyhood, a DS or a PSP will be someone's secondary choice of gaming. They don't need to buy a game for it every month, because they're spending most of their gaming on a console. I don't see the DS's library as being a permanent problem. Yes, it sucks that we have to wait for these games to come out, but they WILL come out. And it's not going to destroy the DS in the process. There are about a couple hundred games lined up for the DS at the moment. Is anybody actually worried that third parties are going to jump ship just because the DS will continue to go through a drought for a couple more months? I'm not. And if there is indeed a new Dragon Quest game in development for the DS, then Nintendo will have won this whole "handheld wars" hands down.
As for the PSP, the main thing I don't like about it is that it has no purpose for me. It brings near console quality graphics to a portable, but with a weak battery life, it nearly defeats its own purpose. I have no interest in its multimedia capabilities, either. And though the PSP may have more variety than the DS at the moment, that almost certainly wont be the case in the future. The DS already has a ton of RPGs lined up for the future, while the PSP only has a handful. I'm guessing it's a battery issue. And then there are games like RTS and FPS that are naturally suited for the DS.