Unfortunately, Kotaku hasn't provided a source for their information, and without specific numbers to work with, the authenticity of such a claim becomes a lot shakier. However, we'll play the optimist: with both system and games reaching mass market affordability, PSP is bound to bounce back in the handheld wars.
More surprisingly, it appears as though the UMD is not dead. Apparently, UMD movie sales were actually up 35 percent from 2005 to 2006. "That jump in sales enticed Target to bring the format back to their stores."
These are interesting developments for PSP, especially if true. The handheld wars are certainly getting far more interesting, now that Sony's recommitted to the fight.