The PSP is amazing from what I saw of it at E3. Of course I am somewhat bias because I got to see Advent Chidren [trailer] running on it, and it looked absolutely amazing. The PSP will support movies, games and music. So basically it will be able to do everything that ferill said, but not a mobile phone. Although Japan are already leading the world in mobile phone technology, as Before Crisis will only be playable on Japanese mobile phones, because no technology outside Japan currently would be able to support it. But back on the PSP, the quality is like watching a mini HD/digital TV. So basically anything you can get that is DVD quality and PS2 quality should run on it. I saw GTA on it as well, but I didn't get to play.
As for an Xbox handheld, does anyone remember after the launch of the Xbox, there was talk of an Xbox handheld. It was even on all the major gaming sites. If I can find a link, I'll edit my post to add it. I guess it never eventuated.
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I'm just speculating, but I assume that MS is taking the HDD out because of hackers/game pirates. Backwards compatibility... rumor is that no next-gen consoles will have it. Too expensive. Apparently, the hardware will be "so advanced" by then, that it wouldn't be financially sound to add the feature. In other words, the sales loss resulting from stubborn people who wouldn't by the Xenon/PS3/Revolution without backwards compatibility will be nothing compared to the cost of actually implementing the feature.
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If they really want to eliminate game pirates, then console companies should start by making games from other countries playable on their consoles. I know it wouldn't eliminate all pirates, but some people just get a mod chip because they want to play a game that isn't available in their country, and then they are tempted to buy pirate games as have a console that supports it. Plus, just having a HD in a console doesn't mean anything, as PS2 games have been pirated long before the Xbox even came out.
I've heard that the PS3 won't be backwards compatible with PSOne games. I kind of hope this is true, because Square-Enix said they will consider re-making Final Fantasy VII when it is not able to be played by the latest console. So while the consoles can play the game, no remake is likely to occur. But apart from that, backwards incompatibility doesn't worry me, because it's not hard to hook up multiple consoles to your TV, just get a system switcher [which I currently have to support my multiple consoles]. You just play your new games on the newer console and use your old console for your old games.
Abe Babe...