I am not sure where you are from, but DS games aren't 40-50 dollars. You may be thinking of the PSP.
I also know that game developers will want to charge more than 5 dollars for some games.
I would be very impressed if Apple could ever topple Nintendo in the handheld game market. No one has been able to in the two decades that Nintendo has been playing in the market.
Last year Apple sold more iPods than Nintendo's Gameboy, all it needs now is a big selection of games. Gaming will be concentrated on the iPhone and touch so we may need some extra time and a pricecut but Apple will be big in handheld gaming, that's for sure.
I don't think the $5 pricepoint is a problem, big games can be split into smaller episodes. Combine these games and other apps with the iTunes store and sales will skyrocket.