They're really not asking for that much more than the DSi considering they're offering a competent internet browser, bluetooth tethering, the ability to play movies, music,photos, and games. I'm not trying to be the PSFanboy on this, but I've gotten bored with my DSi and so I've spent some time debating with myself if the PSP GO's price was worth it. The final straw was free GT and a new MGS, but that's not really the point at the moment...
Early buyers will get a free copy of Gran Turismo. Take that $40 out and it cuts the psp's price difference in half. Hell, it cuts the difference between a DSi and a PSP GO in half. If you compare the PSP GO with the iPod touch 16 gig, the PSP is cheaper. FTR, I will not compare the psp with a 1st generation ipod touch as the psp go is a new system so compare likes yada yada..
They both play music, video, games, have online store, support skype, fun fun.
I have an iPod touch 32 gig. (goodbye month's worth of salary)
I can promise you that you pretty much have Taito, Gameloft, Firemint, and Capcom to thank for the only games worth owning right now. Big developers are getting more and more into it than they used to be but it will probably be another generation of the ipod before we see regular support from big names. The psp, however, has square enix releasing a new Kingdom Hearts and Dyssidia, there is Kojima productions working on their third title for the console, little big planet is about to be downsized, already mentioned GT, Rockband is being bundled with Best Buy PSP GO, etc, etc. Big names are used to the PSP because it has been widely received as a gaming console. Not the Multi-format Entertainment Device (MED) that it is. So when it gets stacked against something like the DS it gets hit for being too expensive when I look at it and say, "No. The DS is the one overcharging for their product."