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I'm thinking if they release a pspphone It would be along with a psp2, similar to the itouch and iphone. That way people who don't want a phone could buy it for cheaper.  I'm almost positive a pspphone would end up being much more expensive then $250 without a contract. Just look at the none contract prices of current smart phones, and they by no means have graphics anywhere near between xbox and 360 level. I also don't think it would hurt iphone sales that much. A lot of buyers aren't that interesting in buying games that require more then a few minutes of invested time, plus there are the many hardcore apple fans that would never buy anything else. Although it could hurt iphone sales  for the 18-30 year old crowd.