The iPod comment is simply stating that lots of people feel OK with spending $400 on a cute bit of kit that does basically what your walkman did, but better.
PSP does what your gameboy did, but better. And $100 less.
the media / "I use iPod more" argument is irrelevant, as nobody is directly comparing functionality with iPod, just the cost/handheld media consumption thing.
As for the media cost, with Sony releasing their LocationFree TV recently, I'd hope for some kind of PC app that lets you copy your DVDs/music to Memory stick for watching / listening on the go.
Yes, they are expensive, but thats your decision to make. Me? I'm not a big music fan, but love my movies, so if this has a good solution for reusing my DVD collection while I'm away from home, great. If not, keep your money in your pocket or buy an iPod.