Targetting the so-called "hardcore gamer" (the PS3 and Xbox 360 crowd) is a lost cause for SONY. Yes at one point they were successful at selling GTA and God of War on the PSP. But looking at God of War: Ghost of Sparta numbers right now, it's evident that not many gamers care anymore. They'd rather play God of War III than play a scaled down version of God of War. The PSP was a novelty at first because it was almost like a PS2 on the go. Now that the novelty of playing Playstation games on the go has worn off, people don't care as much.
The "hardcore gamer" demographic in North America mainly consists of males 15-34. These gamers, outside of commuter cities like New York City and Toronto, own automobiles and drive to and from work and school. They don't have that many opportunities for gaming on the go (and even if they did, using their iPhone for gaming would be more convenient for them as they can kill two birds with one stone). And when they are at home, they'd rather play on their PS3s and Xbox 360s than their PSPs.
Right now the PSP's appeal is limited to the Japanese, western otaku (lots of jrpgs) and the "Marcus" demographic (kids that feel they are too "old" for a DS but don't have the disposable income to get a PS3 or Xbox 360). And then you have those 15 year old North American and European PSP owners who bought the platform for the unique stuff (Patapon) or they want to play Sony properties on the go. But this group seems to be shrinking constantly. Yeah sure, I can understand why PSP hardware sales are down after 5 years because almost everyone who wants a PSP already has one. But why aren't people buying God of War: Ghost of Sparta? If you need any indication that targetting the PS3/Xbox 360 demographic is a lost cause these days, look no further than Ghost of Sparta's sales relative to Chain of Olympus.
Honestly I don't see things getting better for SONY. I can understand Sony's need to release a PSP2 to stay competitive with Nintendo in Japan. But things are only going to get worse in North America. The novelty of Playstation on the go is no longer a novelty. The jrpg selection will likely be more limited for the PSP2 (what incentive would small JP developers have to migrate to the more expensive development environment of the PSP2 when they can continue to create their 2D sprite-based and primitive 3D rpgs on the PSP and sell those games to both PSP and PSP2 owners?). And SONY will only alienate their Marcus demographic by releasing yet another high-priced handheld. Contrary to popular opinion, children don't all universally favor Nintendo. Plenty of kids have an obsession with wanting to be cool and grown up and have a revulsion towards "kiddie stuff" (they associate Nintendo with kiddie). But these same kids are not going to put down $250-$300 of their allowance or paper route money on a PSP2... The PSP2 has priced itself out of the range of this key under 15 demographic. And Sony missed a big opportunity to target a bigger chunk of this demographic by keeping the PSP at the current price point for ages ($170 $20 memory stick is a bit much for a 5 year old handheld) and having a hard-on for older games that don't give a shit about handheld gaming anymore.