Well iPod Touch sales cover that market, which is a fraction of the iPhone market. While I agree that some concession to this market should be made, it's definitely the wrong direction for Sony and Nintendo to move in.
The iPod touch is an iPod first and gaming platform second. Gaming is just another reason to buy an iOS device. If Sony were to go this route, they'd have to mimic Apple's business model and beat them at their own game; I simply don't think this is worth it. Sony makes money off game licensing and takes a loss on hardware, Apple sells hardware with healthy profit margins and uses either inexpensive or free content as an incentive to buy. Which is why iTunes accounted for only 2% of Apple's revenue last quarter, while sales of iOS devices accounted for 65%. I also doubt all those iPod touch users would migrate to a PSP2 even if it aped Apple's device, and doing so would effectively alienate the PSP's core audience.
As for those who bought iPod touches primarily for gaming, PSP2 would definitely be an appealing replacement.
I'm kind of wishing Sony combines the PSP business model with Apple's business model.
First SKU = Sell the device at a loss at release and then rip profit as the cost of the hardware drops, dropping the price in the process. The hardware remains pretty much the same as when it was launched.
Second SKU = Apple's business model. Sell the device probably break even at launch and continue to improve on the hardware. Sell the device at the same price it was launched. The hardware and features are evolving yearly. This will continue the interest and hype for the device as a whole. Examples of hardware evolution could be better screen, faster processor, faster loading times, better camera, better battery life, or slimmer form factor. The most important thing for Sony here is to hype the device yearly on every refresh just like what Apple does.