GameBusiness.jp, Sony's product planning division head honcho, Naoya Matsui, commented that Sony always had plans to go UMD-less, and that the PSP Go is the fruition of all that planning. "We'd planned to release a PSP model without a UMD drive since the very beginning," Matsui said. He further makes his case by stating, "But if we'd simply released the hardware, there wouldn't have been much for everyone to enjoy. We needed to prepare the right environment for it first - things like the transferral [sic] of content with the PS3 and PSN, and PC software to manage content like music and movies such as Media Go."
Matsui explains that part of the progression of the PSP to the PSP Go is that Sony had to wait until digital content was on par with physical media, and that the timing now is right. That's one of the reasons Sony is still selling the existing PSP alongside the Go. Well, that, and it's probably not a good idea to have a single handheld that costs as much as a Wii.