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Depends on whether it's mostly being used to play games, or media then games. Beyond that, the iPhone has much more versatility.

As an all purpose device, the iPhone is hands down the best one I've ever owned (3G 16GB) and I've only been using it for about a month now. It's my 7th phone in a little over ten years and this is the first one I've actually enjoyed using.

I did not want one and put it off for over a year (I dislike cell phones in general). It now replaces my laptop for basic web browsing on the go, e-mail, google/fact search, stock checks, map checks, gps, etc. Only need the laptop for dedicated computing tasks now.

If you need a mobile phone anyway (which is basically everyone), the monthly service fee is the same as any other smart phone with a data plan. But it IS the primary cost of the iPhone, not the phone itself which is at $200-300, is not bad for a pocket computer.

WiFi to 3G to Edge network means all of the above are available everywhere phone service is available. It shouldn't need to be said how useful net access virtually everywhere is. This is the one huge asset the iPhone has over the iPod Touch and the PSP.

App Store alone makes it the most powerful and versatile handheld device as it continually grows in diversity and scope.

As a small pocket sized device (and default phone), it goes everywhere I go, eliminating the need for any other devices. I'm not the waist bag toting kind of guy. If it doesn't fit in my pockets, it's a no go. The camera is sub standard, but, better than nothing when I go somewhere without the intention of taking pictures and leave a dedicated camera behind.

The PSP, great as it is, is really only needed as a gaming device and for PS3 device compatibility. But since I'm not carrying it anywhere for media/music, it's the at home portable device. The screen is a bit bigger for watching movies, but... since I wouldn't take one with me anywhere I went since I already have a media player/phone, it's irrelevant.

And the iPhone battery power lasts the entire day, even with regular use throughout the day doing mixed tasks.