Can't see how it will "flop". It's not relying on a proprietary games format. It's just a smartphone with controls. Even if Psx suite is a "flop" the phone can still run the thousands of apps already available on Android market.
I use my phone for emulation and if this is the only phone to offer proper controls - therefore is better than all the other phones out there for gaming. It's not a handheld console, it's a phone with a well thought out layout for playing games. When the competition in the phone market relies on touch/tilt gaming (which is mainly awful IMO) this is a breath of fresh air.
Also NGage had very few decent titles, this will have a huge back catalogue which Sony can rely on. Imagine if Nintendo had brought out a GBA phone, how good would that have been?
Another thing, why do people insist on calling the PSP2 the "Next Generation Portable"? NGP means Neo Geo Pocket, everybody knows that! Surely every new handheld console is by default a "NGP"?
Smells like marketing BS from Sony i think.