PSP2 running Droid would be a very interesting combo.  It could get the original PSP content, new content, and also Droid software.

They do not have too, nor do I think they are going to I think what sony is doing is making the PSP middleware software stack to be put on Certain SE smart phones. thus the PSP will be a software platform also not just tied to only one device as it is right now the PSP Hardware only platform. the PSP will still be sold but to offset the market share between the PSP and Nintendo's or Apple's handheld's the Software is what will make the key of the PSP platform's going forward. less about the Hardware going forward more about the software.

What an odd question? Obviously there going to continue with the handheld market, just because there not in first place doesn't mean it's a failure, the PSP shipped 60 million units, that's the biggest competition Nintendo ever had by far. PSP2 has potential of being the number one handheld if they play there cards right.

Remember, handheld is the future.

They will make one, it sold to much but the name will obviosly change a bit. Instead of PSP2, it'll probably be called something cachier, like PSSlyde or PSTouch

If Nintendo has shown us something is that the first place cannot be taken for granted. Anyone who stays around has a chance to have success. Maybe in the future PSP becomes more reknown than the DS, maybe not. I just wish that Sony does not get the message that you don't need to make pieces of gaming art in order to have success, message that Nintendo is giving with their Nickelodeon games.

List the cards that Sony would play that has it being the number one handheld and dethroning Nintendo, and also going up against Apple in that marketspace.  In short, how does Sony do it?  I would like to see what it does, not some sort of results and sales forecasts without any causes listed.  If you can't do this, it looks like you are engaging in wishful thinking here.  Nintendo is, for example, going with 3D this time.  That changes the equation.  And if the rumored Tegra 2 is used, the 3DS has capabilities to be on par with the 360 and PS3 on the graphics front:

http://www.macrumors.com/2010/01/08/ces-2010-nvidia-tegra-2-to-power-tablets-in-2010/

This would mean the Nintendo handheld has the possibility of getting copies of games on the PS3 and 360. 

Again, explain the cards you see Sony playing that will lock it in for being number one.  Not just surviving and staying in, but become the top dog.  I will throw you a possible card here, if you choose to use it: Running Droid software.

I have no idea how or what Sony will do for there next handheld but all I'm saying is it's not impossible to see there next handheld to be number 1, we seen the market change so many times it can easily happen again. Whatever feature it may be I don't know, maybe make it a hybrid gaming/cell phone? There new ericsson xperia x10 cell phone seems to be selling like crazy if they combined a gaming machine with what that cell phone offers then theres possibilities. Also we all know just because a gaming machine has really good graphics doesn't mean it'll sell really well, hell if history repeats itself and Sony comes out with a handheld with inferior graphics to the 3DS then the PSP2 will be the highest selling handheld for nex gen, every gen seems to be the console/handheld with the worst graphics seems to sell the most, probably because there usually cheaper, and from what were hearing from the 3DS it could be fairly expensive.

Also Droid would be pretty nice but heres the thing, Sony will try to improve on the security of the PSP2, there going to want to sell software again on there handheld so the security is probably going to be pretty high, maybe PS3 standards, so droid probably wouldn't be the best thing to have on the PSP2. But then again that contradics what I said about about the combining the PSP2 with what the Xperia offers, so I dunno, do they want hardware sales or software sales? it'll be hard to have both but it can be done.

@Rol, Sorry for the typo it was suppose to be PSP not PS3.

Apples not as big now with software though, big companies and still sticking with Sony and Nintendo to develop games for. I dunno Apple still doesn't seem to be in this gen for me.

PsSlyde is such a cool name!!!! :D I reckon they could incoprate a slide function into all there new smartphones with a psp button layout(including 2 analouge sticks!). When this happens your phone enters psp mode where you automatically sign in to the psn and can play the games. If you get a call your game automatically pauses and you shouldhave a pause feature like the psp go so every time you slide open your phone it starts where you've left off!

They could also include a psp slyde (think itouch) but give it 3d capabilities amera and walkman features.

If they go the phone route (Id love them to make a PSP2 that is a phone and/or just a regular handheld, ie Ipod, Iphone) they are sitting in a great spot.  Apple had no previous base when they started (Sony has Sony-Eri).  Sony-Eri has a good deal in place with Google right now for Droid.

What they would need to do (atleast in the US) is this:

1) Go with ALL the large carriers and as many of the smaller ones as possible (Verizon, AT&T and Sprint) and of course work with both CDMA and GSM (and allow them to speak to one another)

2) Make it B/C with current PSP games (maybe not disc based since they should not use UMD again, but definitely DD)

3) Finally give Sony as real reason to have purchased Eri so long ago.

4) Your enemy's enemy is your friend (Google and Apple hate one another probably more than any other 2 companies I can think of)

5) Have it work with PS2 games as well (obtained Via the PSN) would be such a good idea.

first the tegra2 chip is revolutionary for handhelds but it cant match the consoles in graphical prowess, this is taken from digital foundry's take on the 3ds and psp2

"how does the Tegra 2 we expect to see in the new Nintendo handheld stack up? Let's just say that it is a significant improvement, and a colossal jump in performance compared to the current DS. While the amount of vertex shader units remains the same, TMUs and pixel shaders are doubled, and as the chip will be manufactured at a physically smaller size (40nm perhaps, versus the current Tegra's 65nm), we can expect a reasonable bump in clock speed too. Our sources can only speculate at this point, but suspect anything up to 300MHz is possible, depending on just how much the platform holders want to concentrate on battery power. The faster the chip, the more impact it has on battery life. "

and with the deal between sony and img we will probably see this chip the sgx543, once again taken from digital foundry

"From what we've learned about the in-development PSP2, the device is going to be a technological monster. Insiders in the mobile space are fully aware that a deal has been struck between Sony and IMG (creators of the PowerVR derivatives found in the iPhone) and, as previously reported by Eurogamer, a multi-core variant of the forthcoming SGX543 looks set to the GPU of choice for the new machine. A four-core version of the chip appears to be most likely, and while this sounds like overkill, at 45nm you'd be looking at die of around 20 square millimetres based on measurement derived from IMG's own whitepaper. That's significantly lower than the silicon used by the current-generation PSP's graphics unit, which should give some inkling of an idea on costs and power consumption.

The deferred rendering solution employed by the IMG/PowerVR set-up makes like-for-like comparisons against the Tegra solution difficult, but not impossible. SGX543 has four arithmetic logic units, two texture mapping units and 16 of the z-check units essential in using its preferred deferred rendering set-up. And that's per core. "

so one core of the sgx543 can theoretically render about as much as the tegra2,