The main selling points of the GBA (and the GBA SP) are :
- vast library of games (including big Nintendo franchises like Pokemon, Zelda, Mario, Metroid...)
- autonomy
- size
- price
Games, size, price and autonomy are what sell a handheld. The various iterations of the GB hardware, for all their graphical crapiness, have buried far more powerful and good-looking consoles (Lynx, Turbo GT, NeoGeo pocket, Gamegear...).
I know Sony are the masters of the hype, but if they go for making just a handheld, however powerful, they will fail. OTOH, if they successfuly leverage the DivX capabilities, the memory stick, the mini-DVDs, the USB port... of the PSP, then they may very well have a succesful product on a different market segment than the GBA (because I highly doubt the PSP is going to cost anything less than 4 times the price of the GBA, at the very least). And, IMHO, Nintendo's biggest mistake would be to panic (thinking this will be the PS1 all over again) and release some overpriced GBA2 (or whatever) with half-baked 3D capacities, which would (price-wise) directly compete with a much more generic PSP.