I don't see the problem, I really don't.
You would have a compelling argument if this were the PS3, but it's not, it's a handheld gaming device.
No UMD drive means significantly faster load times (A huge issue for the PSP), significantly longer battery life (Another huge issue with the PSP), a slimmer, more light-weight design with less moving parts (And therefore more durable and less prone to hardware failure), and no game cases to lug around - it is, after all, a portable device.
To address your OP, the idea that downloadable games don't drop in price is simply incorrect. The PSN has price drops at a relatively frequent interval, with holiday sales and promotions on a regular basis. Past that, the price of downloadable content is usually far lower than their disc-based counterparts, so this argument you've made is simply a fallacious one.
The only problem I can foresee for Sony is bandwidth restrictions from certain ISP's. That, however, is an issue that needs to be addressed on a far more general basis than the videogame industry alone, and hopefully it is soon.
I also hope Sony is able to find a way to let users install their current UMD games onto their PSP's, that's another essential issue I hope they are able to sufficiently address.
Anyways, it's hardly a dangerous trend; it is already the standard in the portable music industry.
Or do you still have a portable CD player? Maybe an 80's Walkman? I don't know, help me out.
