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Sony Admits to PSP Button Flaws
Apparently despite the original company line, there are indeed problems with the buttons on the PSP handheld. Sony has announced that they will repair the small number of units affected for free, and Tech Japan has the details. From the article: "The defect occurs in part of the initial shipment of PSP units and is caused by excess plastic not being completely removed during the molding and manufacturing process of the outer cabinet. As a result, when a button is pressed, it can become caught on the excess plastic and not return fully to its default position."
Nintendo had a good solution for the time and they marketed it better than others. The Lynx, originally a creation of game publisher Epyx, came into Atari's hands when they ran out of money. Even though the Lynx debuted at almost the same time as the GB, and had great technology and decent battery life, Atari(once again) failed to market and distribute it successfully. Similarly, the Game Gear was good(not as good) tech but was marketed poorly, coming at the time when Sega was also dividing itself between the original Genesis/Megadrive, the 32x, the Sega CD, and finally the Saturn.
Because cheap and small technology for portable devices didn't really advance until the late 90s(remember that's when cell phones took off), the Game Boy didn't. They did the Super Game Boy for the SNES but that was different. When portable tech finally improved, they opted first to slim it down with the GB Pocket. Then they made a few incremental steps in technology for processing power and graphics. But none of this was really provoked by competition.
As soon as "real" competition appeared from the likes of Sony, they broke the mold of technological improvement and moved to the DS which is definitely very unique. They probably plan the same thing for the Revolution.