"There's no question that sales figures will continue to rise next month and beyond. Unless a Nintendo competitor catches on and creates an innovative, interactive, and fun portable gaming device, the DS line of products will continue to dominate the industry."
This article already states that this has been tried before and failed. I wouldn't call the PSP a total failure though since it is still on the market. Fact of the matter is that while Nintendo may not always have the lead in graphics (Sega Nomad was a portable 16-bit Genesis console that also competed with the Gameboy Pocket), Nintendo has always had little niche fun games that sell very well and that is what gives them a strong arm in the market. Sony is more focused on the graphics and does not necessarily offer the same 'fun factor' in their games as most novel Nintendo DS games do. Nintendo could still possibly even be afloat on the old original B&W system due to that fact.
To me, the gameboy color was kind of an inbetween system. Carrying the Nintendo brand, it sold rather well even though there was not a large variety of fun games like the original system had. Gameboy Advance got beyond that and most people forgot about the GBC system and then the DS did so even more.
The DSi system makes little sense. Nintendo does not need a new iteration of the system with built in cameras. It will still sell well since most people have moved on from GBA, but it is very unnecessary to their growth.
I wonder if some day we will see a Nintendo handheld with better graphics. For the time being, Sony has the edge on that and it looks like they aren't going to give it up any time soon.