Regardless of PSP GO's profit margin, the product itself must be losing tons of money. From a manufacturing's perspective, Sony has committed to manufacture a certain number of PSP GO for this year based on their sales forecast. Thus, a huge amount of money would have already been invested in the production lines to meet their forecast. Moreover, assuming that PSP GO is OEMed, Sony would also have committed to purchase a number of PSP GO per month or per quarter from the manufacturer, and probably all those extra PSP GO are now sitting in their warehouse at this moment. Unless of course, Sony forecasted the product to sell as poorly as it is now.
Even if Sony manufacture PSP Go themselves (which would be unlikely), they would have already bought the longer lead time components. Unfortunately, the more expensive components, such as LCD and casing, cannot be used in regular PSP production.
My guess is that many people here are not familiar with product development and manufacturing, and thus do not understand the risk involved in making hardware. It is one of the reasons why Nintendo are so conservative in their forecasts. It is always fine to underestimate the demand; however, overestimating demand as in the case of PSP Go is really bad for business. Just look at dreamcast as another example.
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