So the main idea of PSP is to have a portable game system, and its secondary functions include playing music, video, and connecting to the internet.
Sony removes the UMD drive necessary to play its current 5-year catalog of PSP titles. Yes, there are PSP titles on the PSN store... but there aren't very many. Not to mention most games are a lot pricier on PSN than they are used, and some are even more expensive than a new UMD copy.
Wouldn't that be like taking the tires off a car and replacing them with train wheels, and saying "Oh you can still take it anywhere there are train tracks, and you can still listen to music with your car stereo, and... it still has keyless entry! But this one's 50% more expensive because it's newer."