Their biggest problem was releasing it in the middle of a device's life where most of the games were on UMD already, and they have so few of them available in a digital format by comparison.
Actually, no. Their biggest problem was people who think that because there is no box and manual, it should cost less. This is a big steamy pile of bullcrap to anyone (if I may quote Borderlands) with two brain cells to rub together, but so many people seem to think hosting something on the internet for people to download is free. And sadly, Sony can't do anything to combat consumer ignorance. Even this article seems to think that "games should cost less with no box lolololol!"
One other thing that was a strike against the device that stands out for me... The only way to get games is to download them. You can download them on the PS3 if you have one, or the PC, and transfer them to the Go via USB cable. But you could also download directly from the Go itself. So why, WHY, did Sony only have the device support Wireless B connections? At least go one higher, for crying out loud. It's not like you have to put in a top of the line Wireless N connection.