The small low resolution screen, limited processing power, and small storage space of handheld gaming systems has traditional meant that games were developed on a similar scale of games developed for game consoles that were released (roughly) 10 years before the handheld system. On top of this games tend to be on the "low budget" side of things, and gain from better tools and knowledge. When all is factored in, handheld games can often be made for (roughly) 10% of what a mid-budget console game on a current generation console costs to develop which means they can be successful while being sold at a lower price even with lower sales.
Sony's strategy of producing a more expensive handheld that "matches" the home console experience results in games needing to be developed at a higher budget, sold at a higher price, and needing higher sales to be successful. Right now, developers are skimping on the games to keep the budget resonable, fewer games are being developed in general, and (combined with the high price of the system) it creates a perfect storm for the system.
