its a difficult proposition, since sony isnt very keen on low price hardware and that would be one saving point in the fight(if theres one and not a single hit KO from N).
To marry low prices with good graphics(gcube, sNes)hasnt been historically Sonys aproach. Sure if it lacks 3d(which is a huge draw!), it can devote to have a similar price and better graphics.But developers and a lot of casuals and cores are being drawn by 3d posibilities.
However, all those graphics would mean nothing with a comparable game list and that seems a tall order given nintendos current lineup ,which grows every month.Even More and better games, would meant sony would have to pay developers actively to devote resources, a huge investment that could mean sacrifice and loss. And nintendos quality is unrivaled as developer.Not saying as 1st party Sony is shabby,but sales of 1st party games from nintendo have been historically unbeatable and the quality religiously high(ranking often in the best of the gaming history).
It wouldnt surprise me PSP phone got all the attention from Sony and ditch the psp2 alltogether.
Or release the psp2 at a huge pricepoint with huge graphics ,niche appeal as a non mainstream console(like home arcade neo geos in the 90ths) or the game gear, meant to sell little, yet make profit, but not to compete with the leader.In fact ,in this scenario, the owner already has the 3ds for the sheer amount of core games, and gets a PSP2 because he can afford it, and wants the super graphical games of that system. Meant to coexist as almost a collectors item.