The issue with the PS Vita certainly isn't short-term developer support after launch, though weak software forecast will certainly disappoint sale growth. Look at the 3DS launch: it was known that devs were canning some titles, but others were simply being put in the cupboard to be released later on, presumably 'when the console was doing better'.
Nintendo had one advantage in this arena however; they had strong first party titles that were guaranteed system-sellers. Waiting until a post-Mario 3D Land/Mario Kart 7 3DS painted a much different picture and the sales certainly reflected that. The emergency price drop did little to mitigate industry watchers concerns, but it certainly led to healthy sales supported by desirable software. Metal Gear Solid and Resident Evil will certainly help support growth among the massive adult gamer market, but I don't necessarily believe they were system sellers. In the same way that Twilight Princess saw a Wii port for launch, and Halo 2 backwards compatibility was prioritised for Xbox 360, these consoles looked to supporting software to help cushion their otherwise-bare launches.
I am with Sony on this at the moment though; rumors of the PS Vita's death have been greatly exaggerated. It is too soon to write it off, and I certainly believe that the PS Vita will go on to be a minor success for Sony. However, not differentiating itself from smartphones; and rather attempting to be more like them as a class of hardware will only hurt it long-term. This is especially true when you look at Sony's smartphone business - PlayStation on Android via gaming focused smartphones may eventually replace the need for a dedicated PlayStation altogether. Sony need to embrace this rather than resist it, as cannibalisation of their own products should be okay versus the alternative: being beaten to it by a competitor.
Now, I do know that smartphone game consoles have done very poorly in the past. Nokia's N-Gage was a serious case of a company misjudging a market entirely. Sony have the expertise to make this work if they made the effort. Smartphone gaming has become an enormous market (virtually overnight) and they have already made moves to capitalise on this. However, their current efforts have been pretty poor - look at the awful build quality of the Xperia Play. The eventual merging of Sony's handheld game system and mobile phone markets was obvious from the launch of the original PSP, and as the years go on it is only becoming more obvious. Nintendo have chosen to continue their tried-and-tested strategy, and I believe that it will work for them. Nintendo also have extremely powerful leverage to sell hardware with their first-party library; whilst Sony have some decent IPs I don't believe it is enough to push strong sales.
Battery life remains the sticking point for smartphone gaming, but if Sony are prepared to release a dedicated console with 2-5 hours of play time then they're essentially putting themselves straight into smartphone territory. Touch screen controls hold back most meaningful play experiences on smartphones, but GTA 3 proves that developers are willing to see what can be done with what exists and try and make it work.
Where does it leave Sony when a smartphone can match (or best) the PS Vita spec-for-spec on paper, and have the additional power of being in the hands of ten times the number of consumers? This reality isn't far away. Controls hold the market back from totally breaking through though. But with products like the iCade to test the popularity of these physical input add-ons on smartphones, how far away is 'official' support?
Sony should be nipping this in the bud right now and releasing a PlayStation branded Xperia that makes a serious attempt at being a handheld console and a smartphone. Add a 3G modem-less model and sell it similar to the iPhone/iPod touch model, and they may have a serious contender for serious gamers dollars.
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