Sony attempted to compete against Apple (with the iPod) and Nintendo (with the GBA and DS) when they launched the PSP, and (even though they had a lot of advantages due to the unblemished track-record of the Playstation brand) they were easily beated by both companies ...
Right now, Nintendo and Apple are stronger brands then they have ever been before and have earned more respect from third party developers than they have ever had before ... At the same time the Playstation brand has never been weaker and Sony has lost a lot of influence with third parties because neither the PSP nor the PS3 are the same monsters that the PS2 and Playstation were.
While I can't tell Sony what to do, I would personally suggest that they focus on producing a system that wasn't (necessarily) in direct competition with both Apple and Nintendo and to focus on producing a system that appeals to an under serviced market.
