I don't think Sony can innovate, and since they have already made a portable PS2 and a successor is always one gen ahead in graphics, they are kinda forced to rely on power, wich won't work for a handheld.
If they go DD only, noone will buy it, but a CD-like medium won't be a great soloution either.
The only chance they have is third party support, but why should third parties feel convinced to out their big games on PSP2 when they have the 3DS?
Considering that Sony has taken so much losses with their gaming division, I don't think they can play their regular financial attricion game with moneyhatting third parties and undercutting hardware.
I will be greatly surprised it it isn't dead on arrival.
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