As far as i can remember, PSP hardware alone makes some [read small amount] of profit, so i'm sure adding software on top must make more profit.
Of course it isn't significant enough to negate PS3 loss, but then even PS2 is clearly not doing that either.

Exactly.  PSP hardware is sold at a profit (The slim even moreso than the fat actually).  It is making money.  Just as the PS2 is making money.  The problem is the PS3 loses so much that the PSP and PS2 are not capable of offsetting that.  Just think of how much worse it would be without them though.  

and yes, I'm busting balls on both sides of this argument, as I seem to be the only one here who owns both...

Show me how much of a profit per unit Sony makes on each PSP. Is the profit enough to justify the venture of a handheld product with abismal software sales and relatively no third party support outside of Sony's bedfellows Konami and Square. Does that profit justify a handheld which weakens their third party support? Do you really think the PSP is helping people's faith in the PS3's future or hurting it? Do you honestly think anyone will be on board for the PSP2 after the disaster that is the PSP's software Sales and the PS3's lackluster performance? Do you really think the Sony brand looks that tempting to anyone?

Wasn't this suppossed to be primarily a gaming console? Is the fact that it's now desired for its secondary features not and indication that maybe gaming isn't the focus a relatively well selling piece of hardware should pursue?

How can I show you evidence that it's "worth justifying the venture" when that definition is completely subjective?  Your bait doesn't work on me.  As far as showing 3rd party support though:

http://www.gamerankings.com/itemrankings/simpleratings.asp

I'll go ahead and list them for you (just top 30):

Ubisoft
Namco
NIS
Square Enix
EA
Rockstar
Konami
Sega
Capcom
Activision
THQ
2K Games
Buena Vista Games

That's basically every third party company worth anything other than Koei, and they have a game a little further down http://www.gamerankings.com/htmlpages2/932473.asp

There is no denying that the DS has better 3rd party support, but that doesn't mean the PSP has none.

If you consider the GC a success, then the same standard would apply to the PSP I guess.

Then show me the profit they make on each unit.

That list is pretty pitifully thin for a Console in the prime of its life, especially when I'd count a third of those developers as mediocre list fluffers. And most now only throw scraps to the PSP with the exception of a few shining exceptions. Capcom has grown weary of the PSP calling it a failure and many of those developers have shown dissapointment in the PSP's performance. A good number of developers also threw scraps to the N-gage.

Defend the PSP all you want, but this isn't the PSP's first year, this is the PSP in its full stride. You can only make so many excuses for a handful of worthwhile games on a piece of hardware that obviously isn't being bought for its games. If this is in any way looks like a successful thriving gaming console to you, then you have my pity.

@Game_Boy, even if PSP hardware sales are increasing, are the software sales?

I wonder how much I can ebay your pity for.

Maybe if I bundled it with a DS...

Ha ha. I liked that Game_Boy. Yeah PSP in my mind is quite successful, but here in the UK it is a relative flop.
Strange though that i do see the odd PSP around, i do see more DS but not many more.

Please, you're just in the "I ran out of facts so now I'll present my opinion as fact" territory now.  You're calling 85%+ games scraps.  Face it, your argument is dead, and now all you're doing is showing your own irreversible fanboyism.  

I've never said the PSP was going to beat the DS in anything.  It simply won't, but Sony did create a handheld that's successfully sold a respectable amount of units.  They have an entrance into the handheld market, and they got plenty of 3rd party support for that system.  Their system is now outselling the Wii on a consistent basis weekly in Japan, and it's selling decently everywhere else in the world too.   

It's not hurting the DS for the PSP to be successful as well, so I don't know why you take the idea that the PSP could actually be a worthwhile handheld as a personal attack.  Your argument is dead, so I suggest you drop it before you look worse.