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Most people I know use their PSP as a MP3 player, portable web browser, and occasional game machine on-the-go. Everyone I know who owns a DS, just uses it for games (of course). I'd say there's overlap, but the PSP appeals to people for more reason than just games, unlike the DS.  I'd even go as far as to say that it appeals because it can do many things, and only if you are really into portable gaming, does the DS appeal more.

Heck, if/when that GPS receiver for the PSP comes out, it'll be the cheapest GPS on the market -- I'll be buying that receiver on day 1... another handy use for my all-purpose PSP.. yet another excuse to take it with me on long trips.