@1.2
Uhm, the iPhone is a more powerful device than the PSP and DS. It's like the PS3 of handhelds:

Nintendo DS: Late 2004
67 MHz ARM 946E-S (N-Gage processor) + 33 MHz ARM7TDMI (same processor as the original iPods)
4MB RAM
256KB Flash + cartridge storage
Dual, 256×192 3“ displays; one is stylus touch sensitive
No accelerometers
No camera
No mobile radio
WiFi 802.11b/g
No Bluetooth

Sony PSP: Late 2004
333 MHz MIPS R4000 CPU + GPU with 2 MB onboard VRAM running at 166 MHz
32 MB main RAM (new models expanded to 64MB), and 4 MB embedded DRAM. MemoryStick storage, UMD media
480×272 (368×207 usable for video); no touch screen features
No accelerometers
No camera
No mobile radio
WiFi 802.11b
No Bluetooth

Apple iPhone: Mid 2007
Samsung ARM SoC 620 MHz 1176 running at 412 Mhz + PowerVR MBX 3D GPU
128MB RAM
8 or 16GB Flash storage
320×480 3.5” display with finger multitouch input
Accelerometers for direct physical control
2 Megapixel camera
Quad band GSM + EDGE
WiFi 802.11 b/g
BlueTooth 2.0 EDR

Some of the coolest games have been announced for it as well: Rolando, Tap Tap Revenge, Topple, etc.

But their biggest downfall and letdown is battery performance as well as the whole package. Let's face it, the iPhone is a phone and music player first so that's where a lot of that horse power goes. You're limited to so much ram on the device as well.

However, unlike Nintendo and Sony, Apple continually releases updates to its platform. Look for the next generation of devices (which will be announced Tuesday at Apple's WWDC) and how much it has improved since the 2G iPod Touch.

Apple fanboy out.

I believe Ziriux is talking about the controls.

The iTouch is more powerful than the PSP, and will be getting even better each year. However, it's control scheme makes it rather unlikely to get a true 3D third person GTA, something the PSP has. It's also unlikey to get a real MGS.

Another "issue" it has is it's pricing. Most apps cost less than 10$, meaning that the development cost for the game has to be relatively low if you intend on making some decent profit. You won't see many multi million dollars project on the iTouch.

Finally, most games on the iPhone are meant to be enjoyable for short burst of gaming, similar to the DS I guess. However, deeper games (think Knights in the Nightmare or Crisis Core) seem to be more present on the PSP and the DS.

Apple has way more potential than DS & PSP but limited by the touch controls. That's their only limit.

honestly how do they have more potential?
what exactly makes you say that?