There was an interesing article in The Mercury News blog this morning about Microsoft's plans for a handheld device that would compete with Sony, Nintendo, and Apple to play music, video games and video. Sounds like it really competes with the PSP.
My reaction was sort of "it's about time". Microsoft is pretty good at being the second mover in many fields so this news doesn't surprise me. They are so good at letting someone else pioneer a new device or software and then copying it and marketing their version better.