I personally think for a device to survive now it needs to have:
1. the ability to be hacked, play dodgy games
2. a good app store (because at 59p, who is not going to buy a game)
3. convergence. Email and internet, RSS, etc.
4. A good choice of games with new games coming out regularly
5. Good battery life
6. A free SDK
or it needs to offer something that none of the current handhelds offer as its selling point. For example 3D screen.
The above reasons are why I use my iPod touch more than my PSP.
Are the graphics on the iPod touch better than PSP? No way. Not even close. Play need for speed on the PSP (even the first one) and then on the iPhone/iPod Touch and you will see its not even close visually.
Can i check email on my PSP? yes but its such a ball ache, same for web browsing that i would rather use the iPod touch.
Do I buy games on the PSP game store? no way. Too expensive and not many to choose from.
So, for Sony to compete, they have to develop a handheld which can do everything just as well as playing games. The PSP is superb for games, but useless at everything else. People change and demand more from a device. The PSP go, if it had a touch screen, and could be hacked maybe it would sell more but as it is, no one will buy one. Look at the Japan charts for hardware. No1. PSP 29,000 units. PSP Go Last. about 70.
So, Sony could create a mobile phone with a touchscreen and normal controls like the PSP, add email, internet, RSS to the XMB in a more efficient and easier to use way. For example: Slide your finger press email, email app comes up, for example. An app store will decent prices not £29.99 for a game which is ludicrous and add walkman to it and they may have something. Until then, the PSP will slowly die in the West at least.