The real problem with the PSP is its horrible game library. When I went to shop for a handheld I was hard pressed to find 2 games I really wanted for the system. Obviously I never purchased a handheld although the DS came close to making a sale since they had a better game lineup in my eyes.
If I wanted to get a handheld now the only thing that would make them worthwhile is homebrew stuff in which case I would lean towards the PSP however I would probably never purchase any PSP games save for Lumines depending on the version of PSP i end up with.
UMD movies failed because no one is going to buy a movie that will only play on a PSP when a DVD can play on almost anything. The only person who may even consider UMD's is someone who is away from their home often enough that they cant watch them at home and they dont own a laptop. That market is small and no improvements to the PSP will ever change that. The only way to make UMD's take off is make them <= $5 a piece including new releases that way it becomes an impulse buy even for kids. Otherwise anyone with half a brain could have told you they would fail from the start.
