The DS Lite is really quite an advance on the DS. It's quite a lot smaller, and has a much brighter screen. I've also picked up Mario Kart DS for multiplayer.
I've not had a PSP before. It's got a really nice screen, and does seem to work quite well for gaming. I'm somewhat irritated in that it doesn't work with my wireless access point though (probably because it doesn't support WEP Shared Key), so the browser doesn't work.
I've got a few older games cheaply to go with it. I've also got the new Loco Roco, which is completely mad.