Hmm... If their PSN Store is finally getting worthy PSOne classics game, not like the - excuse the bluntness- crap they are serving us theses days, it could work. You will tell me it's a pretty narrowed niche, but I would reply that we shouldn't dismiss the nostalgic market.
And if they could revamp their network and devices to make it truly contend with the itunes store... well I see it really working.
The PSN Store already have movies, games, add to that apps and music (Sony BMG) and it start to be realistic.
The phone will sell if the content is interesting enough.
They could take the niche between palm users (they had the expertise with the Clié - wich i prefered to tny palm or handspring devices) and the iphone, becoming somewhat of an hybrid.