I think piracy could actually be a factor here. Yes, the pc also has a ton of piracy, but I would say piracy on the psp is SO much easier than the PC that it is almost funny. On the PC you generally have to work out a solution game by game. Some games only require emulation, others you need to hide drive emulation software during play, and others you need to use a cracked exe - and others require even more work. Furthermore, just because you get a pirated game running doesn't mean you are out of the woods.
While with the psp, you do one thing, and you are done. And after doing that one thing, it actually becomes more convenient to play pirated games.
Yes, the DS also has piracy issues, but I'm pretty sure that in all situations you have to physically buy extra hardware to achieve such things. And in doing so, it becomes less convenient.
Of course the PS2 and other previous systems also experienced piracy, but since they did not have updateable firmwares, most solutions were a lot less elegant than the current piracy situation on the psp. (At leasts as far as I can remember)
With all of that said, I'm sure there is another big factor in this discussion. I would think the psp is simply not that great at returning the investment a developers puts into it. According to pspupdates.com it generally costs twice as much to develop a psp game in comparison to a DS game(250k vs 500k). And of course, the DS has a larger user base, so it tends to yield a higher profit from a cheaper game. So, who would spend $1 to make $2, when they can spend 50 cents to make $10.
So I'm afraid the sorry fact is that most people in the handheld market want portable games, instead of games that try to deliver a console like experience.
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