Already used this part with the GBA...
The better specs of the PSP ( which should sit between PSX and PlayStation 2 ) are not the only thing...
It is the games...
In particular cartdridges vs a relatively cheap yet MASSIVE optical disc.
Current GBA developers are not making very high margins even of relatively succesful titles as the carts are a big part of the games' cost and often they have to cut corners left and right because going to a bigger ROM size for them might be completely out of the budget...
As far as gamers go... having the first portable machine capable of true, decent 3D ( with that screen size and very high pixel density the games will not look that bad
) will not be a bad thing... think about a Vice City port, a SOTN port, a new Metal Gear ( or a port ) a Silent Hill game, Madden, NBA Live, LOK: Soul Reaver, etc... MP3 playback ( thanks to this and the big UMD we will have great quality music and sound effects ), Divx movies playback ( gorgeous FMVs possible ), etc...
Deano, of course Nintendo will want to counteract this with a GBA 2, but IMHO the GBA 2 they had in the R&D labs was not designed to compete with the PSP, but was designed as a successor of the current GBA and GBA SP and with Nintendo still in a position of monopoly of the handheld market...
Also, is Nintendo going to release the GBA 2 next year when the PSP launches ?
Will gamers like having one NEW GBA launched every year ? ( GBA -> GBA SP -> GBA 2... )