Well, here's the deal with the PSP.
The bad: It has moving parts. It is massively big. It has no real support as of YET (this will have to come later). It's going against Nintendo in an industry they dominate and know the ins and outs of. It has optical storage that will be much more difficult to maintain (the only way around this is if it is encased in something, like the mini-disc format, and they honestly would HAVE to do this in order for it to even be playable). It will not be released for over a year. It will be much more expensive than the GBA SP (which could be, relatively, half its price by now). It claims to do NURBS, but if its slightly more powerful than the N64/PS, then I highly doubt this.
The big problem is that it's trying to have a full on 3D system handheld, and I say this as a problem beacuse of the resolution of the screen. Try fitting a game like Mario 64 onto the SP's screen. Do you realize how much detail will be lost and how difficult it will be to navigate the world? Not to mention that it will require a much beefier processor and hardware, meaning it's going to get hot and use up battery extrememly fast. Factor in the added time and cost it will be to force developers to make 3D software for a handheld. Also factor in that not many companies are going to devote this sort of time and development to a handheld that will have virtually NO usebase for the first year it will be out. I'm predicting that Sony will be lucky to sell 2 million units in a year. LUCKY.
The only good things that can be said are that A) it will force Nintendo to trump Sony with the GBX, or whatever they'll call the new one (which is lalready in development), and B) it will at least bring about some new software.
But by the time the PSP is getting close to launch, Nintendo will probably have the newest iteration of the GB out, or they'll be blitzing the media with it like crazy. Except a system comparable to a Dreamcast, probably, with GC-sized media, headphone jacks, and a bigger resolution screen.
Honestly I don't think Nintendo has much to worry about. By the time the PSP comes out, the GBA will have...what...35+ million units sold? Who in their right mind would pass up developing for the GBA to take such a costly gamble on an upstart?
Nintendo might not think it's a threat, and it probably isn't, but they'd better treat it as one. I dont' want it to be N64 vs PSX all over again.
I honestly think, though, that Sony is now giong to feel what its like when a developer says "Are you kidding? Make a game for you when Nintendo has a system with 35 million users? Get lost." I get the feeling Nintendo has heard that excuse from developers concerning the GC enough lately....