Here's my theory that is pretty much based on nothing. The 20gb model seemed to disappear around February. The Euro launch was in March. They probably started production of the Euro model (which doesn't have the PS2 chip) in February. I think Sony halted production of the 20gb in order to manufacture 60gb US/Japan models and 60gb Euro models. If they had continued to make the 20gb alongside the other two models it would've probably been too expensive and complicated to deal with 3 models. I think that as soon as the US and Japan gets the Euro model (therefore eliminating one model line), we'll see the lower end SKU back for sale everywhere. This would explain why there has been no announcement stating that the lower model is dead because it'll be back soon.
Again, this is all just my theory.
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