i'm pretty sure you're absolutely right that there's no precedent for a sales turnaround this late in the game. But there's also no precedent for systems that can be updated and improved the way the PSP can. Perhaps this is why we've never seen the kind of sales turnaround that I believe is very possible for the PSP. Plus they don't have to increase their sales by all that much to improve over the 2005 numbers. Will it happen? Who knows. But I think we can both agree that this is the PSP's make or break year. If Sony doesn't make some big moves, I think consumers and retailers will completely lose faith in the system.
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