Truth is, it is in limbo. A state between life and death. It is not dead, but it is not exactly alive either has very few talk of it has occurred.
Few reasons.
1- Lack of good games. Sure there are some, but for the most part they are mediocre at best.
2- Watching movies on a TINY screen is not that great. Sure it would be nice to watch movies, but like Yahtzee said who wants to watch in teeny-tiny-eye-strain-vision.
The problem is not with the PSP, but with Sony. They are not focusing on the games and game development. Instead they keep either stealing from Microsoft to push multi-ports of popular games or they spend so much time getting actual good game out that the competition.
The PS3 and PSP are the more powerful, but they are so busy with "features" that they neglect the heart of what it is...the games. You cannot call yourself a game system and have very few to no games on it.
Listen, you have to have games on the system. No no, you Sony fanboys calm down. Yes both have games, but it is not enough. You wonder why the competition is beating you out because Microsoft is smart and buying up all the right, while you Sony sit here and twiddle your thumbs wondering how you can get more PS3 off the shelves.
Stop focusing on the system and start focusing on the games. What is the point of the power if you refuse to use it?