They never stood a chance at being the media player of choice considering the PSP has 0 internal memory. Sony was trying to pave a new way with UMD rather than taking the ITunes approach, and i'm damn near positive it would've worked if UMDs were $10 instead of a ridiculous $20+. Now with memory costs being somewhat reasonable (i bought a 4gb memory stick today for $66), Sony'll probably go down the ITunes path. If they don't price themselves out of the market again, movie/music downloads will work and help sell systems, which will allow them to offset PS3 losses.
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.
Essay Pro