I think the comparison is best with PSPgo vs Ipod Touch.
The PSP's $249 price doesnt look so bad vs this overpriced $279 Ipod Touch.
http://www.bestbuy.com/site/olspage.jsp?skuId=8772081&st=ipod+touch&type=product&id=1204332254560
The Iphone has a lot of gaming capabilites but people dont buy it to play handheld games. They buy this $279 ipod to play games+ music and surf the net, which is exactly what the PSP does but 10x better.







