I don't think Microsoft has the right marketshare to make a successful handheld. Handheld games need to be easy to get into, easy to get out of, start, stop, and so forth. Nintendo cornered the handhelds market with platformers and puzzle games, and Sony did quite well cornering the budget-RPG market with the PSP.
The XBox brand, however, lives and dies by the shooter, and historically handhelds make for terrible shooter platforms. ESPECIALLY when there's online competitive involved. I really don't think something like "Halo: Pocket Evolved" will work well enough or fit the brand's customers tastes enough to work.
That said, I would love for Microsoft to prove me wrong. I would love an XBLA device for indy stuff and PC ports of low-requirement games, but that sounds like a niche hit.







