The DS is indeed going to take a beating this year. With the ridiculously slow rollout of new titles and the imminent release of the PSP, I can't imagine that Nintendo execs feel very good about continued sales of the DS. Certainly, Sony is targeting an older demographic with more disposable income. However, there will be a decent amount of intrusion into their domain by the PSP.
Given the price point of the PSP, even non-bundled, most consumers will only be able to afford one or the other. The PSP has a much cooler appeal and with better game support from the get go, it will usually win the battle for anyone who is trying to decide between the 2 (note to DS lovers, I said usually). For the truly cost conscious crowd, the DS does have the upper hand with both the system cost and cost of the games.
What's interesting to me is how the PSP could change the gaming market going forward. Consider this, at $40 or $50 per title, the PSP games are priced comparably to their PS2 equivalents. Additionally, the PSP has built in multiplayer and internet gaming support. The screen quality makes the game experience much better than any previous console and a huge leap forward for handheld gaming in general. Because the unit is portable, it offers many more playing opportunities than console gaming. On the downside, the unit does have battery life and screen size issues to contend with (both being compared to the playing experience witha normal PS2). What's the point of all this? I wonder if we will see a trend that has some gamers using the PSP more than their consoles. In such a case, those gamers could replace PS2, XBOX, GC, etc title sales with PSP title sales. Given a choice between buying one or the other, I can easily see some gamers going with the PSP version as they think they'll actually be able to play it more often (assuming the PSP version is of comparable quality).
Of course, most people will probably use the PSP to augment their gaming and not to replace the console. However, the system is of such high quality for a portable unit, that I could see some people using it as their main platform. The launch of next gen consoles would probably slow down such a trend, but I have to wonder what the sales figures will look like over the next 12 months.