Up until some time last year, you did have to use the PS3 to download PSP stuff. But last year Sony introduced a PC store so anyone with a Windows computer could download PSP content. Now this announcement I just mentioned says Sony will allow PSP owners to access the PSP store on the actual PSP itself all through wireless internet.
@Playnext3: Hard drive=high cost+high complexity+size+weight-battery life=not good portable. On board built in flash memory is the way to go. Think Ipod Touch or Iphone.
My Top 5:
Shadow of the Colossus, Metal Gear Solid 3, Shenmue, Skies of Arcadia, Chrono Trigger
My 2 nex-gen systems: PS3 
and Wii 
Prediction Aug '08: We see the PSP2 released fall '09. Graphically, it's basically the same as the current system. UMD drive ditched and replaced by 4-8gb on board flash memory. Other upgrades: 2nd analog nub, touchscreen, blutooth, motion sensor. Design: Flip-style or slider. Size: Think Iphone. Cost: $199. Will be profitable on day 1.
