Kids today are spoiled with their iPod touches and iPads and PSPs and 3DSes. When I was their age, portable games certainly DID NOT look comparable to their console counterparts.
If you remember life before the advent of the Game Boy, then you remember Tiger Handhelds. They were cheap, they were attached to some sort of established gaming/toy/television brand or franchise, and the gameplay was pretty shitty. But as a six-year-old, I wasn't particularly concerned with the nuances of game mechanics. The colorful artwork on the LCD bezel had already sold me before I turned the thing on (I was a marketer's dream!).
Still, in 2011, it seems difficult for kids today to have that same sense of excitement that those of us 80s babies had with the Tiger Handhelds. We got colorful pieces of plastic. They get a minimal black slab of glass, metal and plastic. Yes, their games are a million times better anything we ever played, but when you're a kid, downloading a game from an app store can't possible be as exciting (or epic) as going to Toys-R-Us to get the handheld game (or cartridge) du jour, right?
Take, for example, my personal favorite Tiger handheld from the era: Bo Jackson's Football and Baseball. Unlike ANY Tiger handheld before it let you play two different games! On two screens! I could score 99 runs in one inning! Sure, the Game and Watch version of Donkey Kong had two screens years before this. And gluing any two Tiger handhelds together would offer the same exact functionality. But it wasn't the same.
And the best part about these was the minimal investment of time and money required. You pay $10-$15, play the thing for 10 minutes at a time, and toss it to the bottom of the toy pile a month later. If you buy a DS or a PSP, you're gonna drop a couple stacks for a new device, plus anywhere from $20-$40 for a game. And you have to deal with cartridges...blah. And sure, plenty of smartphone games only cost a few bucks, but the device itself costs hundreds, and the lack of uniform hardware means there's no guarantee how well it will play games in a couple of years.
There needs to be a dedicated device that hearkens back to the tiger era of gaming. Obviously, one-off games/devices aren't really an option, because that's just archaic. But Sony has the right idea with their Xperia Play and their "hardware neutral" Playstation store for Android. But a cheaper, more stripped-down device would still be better, and from the sounds of it, the selections of games might only be old PS1 games.
Make it colorful and awesome (kids shouldn't be stuck with boring smartphones). Let it run a custom build of Android (no need to live in the past). Make it no more than $50 (it'll get lost or broken). It doesn't need the best, latest hardware (simpler games mean lower development costs, which mean they'll be cheaper for the enduser). And give it an app store where every app submitted was made with that specific hardware in mind (because glitchy gameplay sucks). Get some serious game developers on board (more Megaman, less Farmville). And for the love of god, give it some buttons (because touchscreens can't do everything).