If retail is cut from the picture, and cost-of-goods is also cut, the publishers will see revenue at nearly 2x the rate per unit sold.
Publishers will push HARD for digital distribution to work, trust me. And retail, likewise, will push hard back. This pushing war really has nothing to do with Sony directly. Already they've likely forced Sony to bump the price on the Go and DD software (so the retailers can make a decent profit) with threats of not carrying it, otherwise. That hurts the 3rd party publishers far more than it will ever hurt Sony, who will probably be selling the device for a small profit throughout its lifetime (the retail cut will be more though, for certain).
Politically, if you disagree with the actions of the middleman, and want to see the games industry thrive, great new games be made, and game prices eventually drop, you should buy a PSP Go out of principle (or an iPhone or Zune HD or DSi or somesuch).
If you adore the middleman (who can blame them for wanting in on some of your wallet action, really?), you should definately buy new UMDs/DS games/CDs from retailers, and then trade them in at retailers for some paltry credit on the next item you buy from them. Be sure to pay like 90% of the new price for used games though -- if you pay less, you might be endangering the profiteering of the store, and retailers might be forced to sell games at what digitally distributed games would probably cost without retail intervention and threats.
If only the retailers had chosen to share the obscene profits from used games... maybe they'd be much happier, the games industry would be healthy and vibrant, and DD wouldn't be looming so threateningly on the horizon.
