Well, I did say I don't think the iPhone is in direct competition with DS/PSP. But the thing that iPhone has against the competition is the software: the iPhone OS and the App Store and everything in it. It is certain iPhone won't kill portable gaming, but it MIGHT bring games to a new crowd.
About the software sales plateuing: Apple is planning to sell 10 million phones by the end of the year, that's about 1.5 - 2 million phones each month, and the people who buy those phones are going to buy software, too. I don't know what is the installed base of iPhone OS 2.0 currently, but since there were 6.124 million iPhones sold by the end of Q3, and by all accounts a significant number of those were jailbroken, I'd say it's 6 - 8 million. That works out to 3 - 4 apps per device, and if the same kind of attach rate continues, the total software sales should be at least 48 - 64 million by the end of year. That's assuming that the current owners stop bying. Sure, the sales will be lower than the first days, but as the installed base grows, I believe the software sales will follow.
