You guys act like Sony is springing this on the consumer but the mainstream gaming media have been pushing both Nintendo and Sony to do this for a long time now.
http://www.wired.com/gamelife/2007/09/david-perry-son/
http://kotaku.com/325681/umds-are-still-relevant-arent-they-arent-they
I think kudos should go to Sony for taking the first steps, while still leaving a back door open for those who aren't convinced. After buying several games digitally it's my preferred method now. I can just carry my PSP around now and don't have to worry about hauling all of the UMDs should I decide I want to play something else. However, I think they need to lower the price of the digital formats to encourage adoption.
Really what this boils down to is Sony doing something people said they wanted, but limiting it in ways they think are unfair. I can imagine it would be incredibly difficult to get all of the publishers to OK allowing users to copy their own UMDs for backup to their PSP. Yeah right, that's a huge pill to get them to swallow.
They are also testing the waters that the iPhone is currently owning, mini games. The PSP mini's should have been there from the start. I'm sorry, I have an iPhone, but it is crap for gaming on for most games. If I want to make a larger game purchase ($10-$20 and up), it's not going to be for my iPhone. I think they will turn out to be a good thing. Now if only they would open up development like Apple has with the dev kit and the way Microsoft did with XNA. I believe the current price for a PSP dev kit was reduced to $10,000