Yeah, I think it has a lot to do with it being marketed as a handheld "console experience." It had plenty of spin-offs of AAA console games within the launch window, like Uncharted, Assassin's Creed, Call of Duty, God of War, and Resistance, but Sony greatly misunderstood the handheld audience. You can't just move a AAA PS3 series to a handheld and expect people to keep buying it, especially if it's pretty much identical to the console game in style and gameplay. Nobody is going to play Call of Duty on their 5" screen with tiny thumbsticks when they can play it on a 50" screen with large thumbsticks instead.
I guess that all ties in with the lack of killer app though.
The memory card thing is also a huge issue. I can see it being a tactic to keep the price tag of the system itself low enough to be competitive with the 3DS, but most consumers aren't stupid enough to overlook the "hidden" cost of proprietary memory cards that are apparently made out of solid gold.
It's going to stay a niche device for JRPG and VN fans.
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