I think another big issue is that it doesn't set itself apart from it's home console brothers to make it a viable choice for gamers.
By design and particularly in comparison to its competition, it is hardly a portable device. Big, heavy and with a not stellar battery life means that it's not as useful as a portable gaming device as a DS (from a purely physical standpoint). On top of that, the design of the console AND the games library it has doesn't do enough to differentiate itself from the PS1 and PS2.
Why would I (or any consumer for that matter), spend money on a new console to play games I've already played on my home console (PS2) with lesser graphics and most likely less content. I know the issue is being addressed (sort of) with games like patapon, but the PSP hasn't shown itself (to me) that it is a worth the money as a gaming platform (particularly in the age of Ipod, which is a much better multimedia device)
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