I don't see Apple ever challenging either Sony or Nintendo is a big way but they're going to undermine some of the casual market from both. The iPhone is a better multimedia device than the PSP and it's a more convenient casual gaming device than the DS. It's a more capable device than both, though that comes at the cost of dedicated, long-term gaming options. As said earlier, it's a better quick-and-dirty gaming system when you don't have a better option with you. For some people, that may be enough to stop them from buying a DS or PSP entirely... though casual gamers don't buy nearly as many games as their hardcore counterparts, who buy several games for every system they own, minimizing the overall impact to the DS/PSP.
What no one is touching on here is how much of a boon the iPhone/App Store is for developers. A few people can build a game and if it's good, they'll make a bunch of money on it. That isn't available at all on the DS because of the immense cost of cartridge fees and manufacturing of a DS cart, and then getting through Ninty's licensing program. The same applies to any disc-based PSP game. Sony does offer the PSN but how many PSP owners use it? The App Store is far more convenient and can be accessed at any wi-fi spot or, in the iPhone's case, anywhere with a signal. To even set up a Touch device, you need iTunes access so every owner is already set up in the system.
Then there's the cost of games... the iPhone offers such cheap gaming that even a kid who gets a small iTunes allowance (and several that I know do) can buy a few games a month. That's a pretty big deal and has the potential to change how we think about gaming... Viva la digital distribution! It is the rebirth of the small-time developer and I welcome it.
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