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1) Online distribution would be playing catchup to Apple and now even Nintendo
2) Ports of PS3 and PSN games is nothing new in 2009, that's been happening for years
3) How would a UMD-less PSP play games? the market is not ready for complete digital distribution
4) A psp phone is possible, touchscreen not going to happen
5) Digital Distribution is less likely to work if you need to buy vouchers instead of using a credit card, and if you do stop selling retail games, and if you allow people to use credit cards they will, and then shops will stop selling PSP hardware because they make little to no profit on it (or sell well above RRP) Shops also take a loss leading strategy with consoles

Epic fail