I think Nintendo could have a good strategy for thier portable market in place. Nintendo creating a "third tier" for NDS is good 'cos it seperate's it from the GameBoy market. If they were trying to flat out replace GBA with NDS that would be bad since GBA still has life in it and is very profitable for Nintendo (not to mention the risks all around with such a plan). If they had waited to introduce the next GameBoy after the GBA winded down, then PSP would be uncontested on the market against an technologically inferior GBA. Introducing a third tier was really the best way to do it. If this third tier were simply a new GameBoy with better graphics then it would be GBA's replacement (too soon)...not to mention that if Nintendo had went for the same thing as Sony did with PSP then they would be losing as much money as them as well as sacrificing what has made the GameBoy line so successful: price, battery life & durability. NDS hardware is probably going to be profitable for Nintendo at launch, let alone counting software...all the while it's been rumored that PSP is going to give Sony a hit of $200 or more per unit sold. NDS has put pressure on PSP, regardless of how Sony has painted it and Nintendo has alot more price drop breathing room to play with if they need to.
As far as the future goes, I see both portables doing very well in marketshare & mindshare, but that NDS will make more money for Nintendo than PSP will make for Sony. Then, by the time PSP hits any kind of stride a more capable GameBoy should be ready to launch...the NDS will have raised the bar on Sony before the real handheld battle begins.
This idea of turning GBA into an "iQue model" is nice, but why not introduce such a model with the next GameBoy instead? I say wait 'cos Sony is obviously thinking they can garner more of an attach rate with PSP than Nintendo has in the past with the GameBoy line. But I think an iQue model for portables would be great (as they are a secondary form of gaming to consoles) for the simple fact it makes everything cheaper. By then Nintendo could have a better way to distribute games the iQue way making piracy more difficult (I'm thinking a combination hardware link & wireless communication at the same time so games can't be distributed unless both are working in tandam with the connection). This can be one way that the next GameBoy can be seperate from the GBA & NDS, as well as possibly giving a selling point for Revolution by making it an at-home hub for such a distribution method. I really like the idea of buying a console game, putting it into Revolution to play at home and download (from the game disc) a smaller screen version (or "chapter" if you will) of the same game to the next GameBoy to play on the go. That way developers & gamers reap the benifits of doing ONE game that reaches BOTH markets.
N-Sider, a while back, had some rumored Nintendo next-gen specs that talked about the next system and portable having built-in HD's. If this is remotly true then it is possible that Nintendo could have this very idea in mind.