I dont "get" a power race in handhelds.
I get it on console. It matters a lot to the hardcore market.
However handhelds are a different story, consoles will always be more powerful anyway so if you really want great graphics why are you playing a handheld? And graphics cant be fully realized and enjoyed on a small screen anyway.
This is not to say, nice visuals have no value on a handheld or anything, of course.
I think building the most powerful box is a surefire way to success in consoles (please lets not rehash this argument if you disagree) but the PSP proved, it isn't in handhelds.
There would be little benefit to Sony in building a PS3 powered handheld, although technologically they couldn't anyway.
In fact, I'd argue a major factor in handhelds since they typically sell less software, is profitable hardware. The fact is contrary to conventional wisdom Apple makes an order of magnitude more profit on iPod hardware than on iTunes or the app store combined, and always has. It's best to be like Nintendo, where the hardware itself is a major source of profit. I'm sure the PSP hardware is the main source of PSP profits as well. The point is, building an expensive handheld, much less a loss leading one, would be bad news.
PSP is far and away the most powerful (compared to DS) handheld anyway, and has always played distant second fiddle. It's quite possible PSP will be more powerful than DS2! Whats the point in more power then?