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SONY should not scrap plans for PSP2 -- but they should wait until its time to launch PSP2. 

 At the moment the 3DS looks like it has around the same power as the PSP -- which means that SONY should be able to convince developers to make PSP versions of their 3DS titles. Also this gives SONY an opportunity to cut the price of PSP and wait until 2011 to launch PSP2 as unless Nintendo kills the DS it should continue to dominate the handheld market for atleast 12 months.

 Of course if SONY chooses not to launch PSP2 in 2011, then they will be out of luck as by 2012 they will be risking Nintendo or Microsoft launching new consoles.