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The thing I wonder about with the PSP go is whether it can be successful being that its design goes against elements that worked so well for other handheld gaming devices ...

Whether someone upgrades their handheld or an additional handheld is bought for a household, the fact that games were on physical media enabled people to share their games within their household (for the most part) which made it a fairly easy sell. When you move to a DRM based digital download service with no sharing there is very little value to upgrading your system or buying an additional system for the household because money already spent on games can not be used on the new system.