more than likely the market is just cyclical.
everyone has a phone so everyone bails on handhelds and plays crappy 20 minute games with either crappy directional controls or good touch ones. people clamor for better controls so (like the new sony phone) they make built in buttons and pads. then better graphics processors then games for those processors. suddenly we have games for only some users (not everyone will have the hardware) then people will want games with more depth than the 20 minute crappy games and be willing to pay for it. aaaaanndd we're back.
just look at netbooks, they were supposed to be uber cheap stripped down and tiny. then people wanted more cpu, a full hard drive, bigger display, now they cost as much as a laptop, but are a bit smaller.
think tablets liek the ipad are the future? sure then one day someone will get the "bright idea" to put a fold up keybored "right on the ipad!" genius! aaannnd we're back.
my phone as a gaming system? yes and no, i have hooked it up to my tv, used a wii remote synced to the bluetooth and run an snes emulator. *that* rocks pretty hard. for actual gaming ont he go the ds is far nicer and better. especially with my ace-card where (like my phone) i can keep 3 dozen games ont he device without carrying a lunchbox full of carts. if the 3ds had a nice ipod hard drive and a slick online market ( with the option to buy and install from carts) i think it would be more relevant in today's market.