It's been said that iPhone gaming is revolutionary and the CPU power it possesses is more than the DS and PSP combined. In fact, it rivals the PS2 and Xbox in terms of graphic powers.
However, I know it's hype and marketing to think that the iPhone and the iPod Touch are being mentioned as a potential competitor to PSP and DS. It is just like Google's G1 being compared to the iPhone.
But truthfully, the gaming for Apple's mobile devices still have a long way to go. Maybe in a year, we'll know. There could be 30-40 million iPhones and iPod Touches by the end of 2008 and 100-120 million by the end of 2009. That an awful lot of gamers to sell to.
More at why we don't think iPhone is ready yet at On Apple.