1/ Like with the PS3 - Sony are pushing it as "more than" a games machine. This means not only that people buy it with NO intention of playing games on it - gamers end up doing things on it other than gaming. This reduces the number of games bought.
2/ Warez. When I was in HongKong, the warez scene was HUGE. Every man on each corner was selling warez equipment - every PSP sold basically came with everything you needed. Why buy when you can copy?
3/ The PSP is basically a "portable" console. If you do most of your "console" gaming at home - why buy one?
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Developers see this, and have greatly reduced the quantity of software available for the PSP. Only big titles have a chance of actually selling well.
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It should be noted that PSP software is selling pretty badly in the US as well. I suspect this holds for Europe too.
Gesta Non Verba
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