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I don't think it's the smartest move introducing a handheld in which of the two current competitors (Iphone is mostly a joke as a gaming platform, with the very best games being about above average against the PSP and DS's software lineup), 1 is clearly market leader and showing no signs of stopping and the other is still quite strong AND making a profit.

But, next handheld generation:
- Two analogue sticks
- Sleek clamshell design
- touch screen (not essential)
- included headphones with headset
- Connectivity to Xbox 3 or 720
- built-in wifi
- Relatively cheap (At least not as expensive as the PSP is to the DS this generation)
- Not too bulky
- Focus on awesome 2D or 2.5D art graphics and at least slightly better than PSP 3D graphics.

It may be a hybrid (read: copy cat) but they may have a winner on their hands.