No, it's not just the pricetag. No support for UMD is hurting sales a lot and probably more than the pricetag. Japanese gamers are always buying new colors, revisions etc etc. They are very consumerist but why in hell would they buy a revision if they can't play their games (UMD)?

There isn't reason for the repeat consumer to do so. However new people taking the plunge may feel differently.  So much that Sony saw fit to brag about it's increase in PSP PSN traffic despite it shifting less hardware than they expected.

If the PSPGo cost as much as the DSL then i'm sure it UMD legacy wouldn't matter much either way. 

It's ugly, expensive, and the PSP just isn't ready for digital distribution only. And it's not possible to play the games you already own.