The dedicated handheld market is not niche, lol. Last generation handheld consoles, which consisted of DS and PSP, sold over 210 million units and huge amounts of software. Lots of games sold well over 5 million copies and some even over 20 million. These games would typically retail for about $30-$40 each. Nintendo games especially would sell this well and still retain its launch value.
PC sales far surpass that of home consoles, some people buy PC's specifically for gaming much like some people buy iPhones specifically for gaming (lol, not true but for the sake of arguement lets pretend). So home consoles are niche too right?
PC's aren't dedicated gaming machines, if they were there wouldn't be 100's of millions of people buying home consoles.
Now switch PC's with iPhone then switch home consoles with handhelds and you have yourself a proper analogy.
Not to mention that although iPhone/iPod sales are tremendous, a big portion of people rebuy each edition that release every other year.
I have so much more I wanna say but I won't bother, I will just wait for the responses that may never come. So oh well.