Doesn't look bad, but the fact that it looks like a camera will turn off many casuals. The Cell processor, from what I've read, will need much more space than that, however.
Are UMDs the primary disc reader (ie: plays PS3 games)? Or is it just the rumoured connection that the PSP will have with the PS3? I would have figured they would have done like Nintendo did with GC to GBA, except wireless.