I've always just thought of the whole "third pillar" thing as being redundant as well, and perhaps a failsafe way of writing it off (if it were to not do very well) without killing the Game Boy line (as if that were possible).
I've often heard people complaining about the constant redesigns of the Game Boy, even if in actuality there have only really been the GB, GBC, and GBA. Sure, there's the Pocket, Advance SP, and multiple colors and special editions of each, but it's not like there is a truly new one each year like some people seem to imply. However, the time gap between the GB, GBC, GBA, GBA SP, and the DS seems to be smaller each time if I remember correctly, so if this were a new Game Boy, anyone even thinking that the Game Boy is redesigned too often is going to be hesitant about purchasing something new right from the start if they think something even better is going to come soon enough...
However, it IS a portable, and it CAN play GBA games...what I think will happen if the DS is even moderately successful is that the GBA software will still continue to roll out (tens of millions of GBA owners can't be wrong!) but the GBA hardware will slow down until there's a large enough number of people with DSes to be able to close off the Game Boy line, if Nintendo really wanted to, at least to reduce unnecessary segmentation.
But this is about the DS vs. the PSP, not vs. the GBA.
What I wonder about the PSP is when it'll come out. As already mentioned, it's PS2 games on the go for much, much, more. Why pay much more to play games on a tinier screen, no surround sound, etc. I'm guessing a PSTwo redesign is on its way, which could make it cheaper, and judging by the expected timeline, if people hesitate and don't pick up the PSP right at launch, I'm sure the hype for the PS3 will be building up and people will be saving for that. I'm just speculating at this point, but wouldn't the PSP and PS3 sell for about the same? Which would make the PSP, if only essentially a "portable PS2", less worth buying.
At least the DS is more interesting with its features, and whether or not they will be fully utilized often, it seems like developers like it more to give it a more varied library of titles earlier on and maybe even onward.