I think this is pretty exciting, regardless of whether this is the PSP-4000 or the PSP2, although it will depend on the final execution (if all this is even remotely true to begin with).
What I am hoping this means, is that Sony creates a phone that is specialized for gaming and will come with all the functionality you would expect from a handheld gaming device. What they're creating then, would be the premier hardware for gaming with Android, on smartphones in general perhaps. If it takes off, games on Android (the kind it has right now) would be built to play well with these controls, which means you have a hell of a lot of games to play from the Android Market alone.
On top of this, if Sony makes this the best solution for gaming on Android and succeeds in getting big games made for it (with publishers bringing games of the same "scale" as PSP games), these would be games that play on many Android devices but play best on the PSPhone (or similar gaming Android hardware if that should ever be made), which could equate to huge third party support do to the already massive install base.
I don't know how it would work in detail with licensing etc., but maybe the added install base would help offset the lack of revenue generated by licenses from third parties, as Sony could sell more of their own software to generate revenue.
But basically, this is something I really, really want to see happen, and what I imagined when we first discussed the PSP2 as an Android device. When all is said and done, I want devices that can all play the same games (death to non-sense exclusives!), and this would be a step in that direction (like Valve has done with Steam and PC/Mac games). It would also help bridge the gap between traditional quality handheld games and smaller mobile games, but with the functionality of the smartphone on top.
Do it Sony! :D