They're both right. The PSP games look like PS2 games at quarter VGA resolutions. The tech is definitely very impressive in that they fit this much power in such a small size. It's CPU has an embedded VPU & 8MB eDRAM, it has two GPUs with 2MB eDRAM to handle both polygons (33M textured&lit poly/sec, 664Mpixel/sec fill rate) and curves (beziers, splines with tesselation to polys .. and even hardware accelerated skeletal animation), and it has video (MPEG) & sound (virtualised multi-channel) processors.
The PS2's GS (Graphics Synthesizer) chip can output 75M polys/sec, and the EE (Emotion Engine) 66M polys/sec, 38M lit polys/sec or 16M polys/sec as part of a curve. These are all theoretical benchmarks, which mean nothing in the real-world gaming benches. Unfortunately being a closed platform for consumers I don't know of any standard benches for any console. But just taking all these theoretical peak figures, about a 1/3 the power, but running at 1/4 the resolution, so it should be able to look better than PS2 games in theory .. eventually! This is all speculation at the moment, can't do much more than that!
However I have seen some videos of PSP games and they do look like PS2 games, if a little blocky sometimes (due to the low screen res, but not distractingly so). Basically if you like console games, and have a lot of spare time when being mobile, then it's probably worth the cost ... but only as a gaming machine really!
Unfortunately, you see, it relies on proprietary storage .. UMDs are read-only (and I doubt anyone will bother making a burner for those), or flash memory (Sony's Memory Stick)!! So unless you want to repurchase a whole load of movies on UMD, the movies would need to be on expensive 1GB Sony MS's ... and flash memory is usually expensive anyway compared to HDDs let alone Sony proprietary stuff too .. it also has a limited number of writes! For audio, Sony made the recent decision to finally support mp3 rather than simply just their own ATRAC formats! Also, the low screen res means you won't watch at DVD res let alone HD res's! CODECs wise it can handle mp3/ATRAC, MPEG4 etc ... which means annoying transcoding if you prefer to store AV in HD video, HD audio or open/non-lossy audio formats.
Personally, I'm more of a PC gamer, since I often tend to bored of many console games very quickly. The only console I can remember that had a good flight sim was the PC Engine (which also had a portable variant, the GT) .. Falcon was the game. I'd much rather put that money towards an ultra-portable laptop with a decent 3D chip, DVD drive, higher-res LCD and decent battery life. I could then use it for PDA & work tasks too!
Summary: if you love console games and are often on the move, go for it. The only other mobile options are the DS (if you specifically like the touchscreen games or Miyamoto games), a decent gaming laptop or a subnotebook (if like me you are entertained for hours by adventure games, strategy games & PC RPGs ;-)).
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