the reason why people will pay that money for a ipod touch or iphone even though it has pretty bad graphics hardware, is because the versatility of the device.
With the iphone and ipod touch, you can surf the web, use skype, subscribe to podcast, have access to thousands of free apps, multitask, play basic games, and much more.
While devices like the nintendo dsi and the new portable sony gaming devices, you have far less versatility, you can only run overpriced DRM loaded games, and if you are lucky, have a poorly designed slow browser that only supports the web standards from 1000BC.
These companies hate apps being developed for their gaming devices to a point where they restrict everything. then they want to justify a $250 price tag. for that price you can get a used netbook and a used ipod touch.