There's been games on phones for years, this isn't a new thing. The only new thing is how cool Sony and Nintendo think it is to charge a ridiculous amount for a portable game system.
GBA launched for what, $100? DS Lite, $130? Now Nintendo tried to pull $250 and dropped to $170, which is still too high and Sony is sitting at $250 and $300. The original DS or Game Boy Advance would have met the same apathy at these prices.
Nothing's changed with appeal, the only thing that has changed is Nintendo and Sony have priced themselves out of the acceptable market for handhelds. And you could make a case Sony has never been in that market from the beginning.
The same power, minus a screen, minus 3D, and Game Boy branding at $120 launch and Nintendo would have made a killing.