I don't see what the problem is, it's basically an iPod touch with full-game capabilities swapped in for the touch capabilities, and as mentioned earlier in the thread it runs 50$ cheaper than the iPod with the same memory capabilities. It does more than just play videogames, it connects to the internet wirelessly for browsing, plays music, PS3 connectivity, and so on.
It's exactly like the DSi it's an alternative to the current model, it is explicitly NOT replacing the PSP-3000.
It's a great time for them to un-roll a new PSP aswell, with the recent upswing in the PS3's, with the large amount of inter-connectivity between the platforms is a perfect chance to push a new product to the new buyers. For the price of a PS3 a few months ago, you can get a PS3 and a PSPGo or if your inclined PSP-3000.
They're trying something new, it's the first all-digital hand-held video-gaming device, so suit them. You don't have to buy it, and they are far from asking for your approval. Wanting it to fail is juvenile and rediculous, you may not approve of it, you may not want one, but wanting it to fail is just silly.
I'm not telling anyone to keep it to themselves, you have an opinion, fine air it, odds are someone will listen. But saying silly things like "I want this to fail because blah blah blah" is just frankly, well stupid.
If you have a problem with the price-point, remember while it's closest competitors are the DS, and the PSP-3000, it is still in it's own bracket as a digital-only platform. Same thing with things like the iPod it does feature many similar features, but it's big-time videogame features set it apart from that aswell. So to price it between the two (PSP 3000 and the iPod) seems appropriate to me, so 250 seems fair. If the demand doesn't support the price-point it will lower over time.