The Zune HD does look like it has potential for better games than what's on the Apple iStore. But honestly I don't think PMPs are that appealing for games. The DS and PSP stand on their own as gaming systems. They are not seen as just some quick portable substitute for the home consoles (some people still hold this perspective though. A friend of mine never uses his PSP anymore because he sees no need for it now that he drives and doesn't really have many opportunities to play on the go. When he arrives home, it's PS3 time, PSP is seen as inferior to the console experience. But for a lot of people these days, it's no longer like that ever since handheld games became much more substantial compared to the Gameboy days where games were mostly inferior versions of what was available on consoles).
Cell phone and PMP games however are DEFINITELY substitutes. Almost everyone plays these games because they need something to kill time (whereas it isn't like this with the DS and PSP so much). If I have surplus air time on my prepaid, I'll use it to buy a game to play on the go when I'm bored (I love DS but I wouldn't be caught dead with one in public. While it's all the rage with women, it's seen as dorky if a man is seen playing with a handheld console, especially Nintendo handhelds.) But there's no way I'd buy a cell phone or PMP game just for the sake of playing that game. I'd rather play with my DS or 360. And at the end of the day, if you are just looking to kill time, carrying around just your cell phone is more practical than carrying both a cell phone and a PMP (ie. Zune HD). So for people that just want to quickly play a cheap game to kill time, they're gonna opt for the all-in-one iPhone (no need to carry a cell phone and a pmp. you get two in one), not the Zune HD.
